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GENWORTH MI CANADA INC. 2015 ANNUAL REPORT 52

Genworth MI Canada Inc.

Consolidated Financial Statements (In Canadian dollars)

Years ended December 31, 2015 and 2014

53 Management statement on responsibility for financial reporting

54 Independent auditors’ report

55 Consolidated statements of financial position

56 Consolidated statements of income

57 Consolidated statements of comprehensive income

58 Consolidated statements of changes in equity

59 Consolidated statements of cash flows

60 Notes to consolidated financial statements

GENWORTH MI CANADA INC. 2015 FINANCIAL REPORT 52

Management statement on responsibility for financial reporting


Management is responsible for the preparation and presentation of the consolidated financial statements of Genworth MI Canada Inc. (the

"Company"). This responsibility includes ensuring the integrity and fairness of information presented and making appropriate estimates

based on judgment. The consolidated financial statements are prepared in conformity with Canadian generally accepted accounting

principles.

Preparation of financial information is an integral part of management's broader responsibilities for the ongoing operations of the Company.

Management maintains an extensive system of internal accounting controls to ensure that transactions are accurately recorded on a timely

basis, are properly approved and result in reliable financial statements. The adequacy of operation of the control systems is monitored on

an ongoing basis by management.

The Board of Directors of the Company (the "Board") is responsible for approving the financial statements. The Audit Committee of the

Board, comprising directors who are neither officers nor employees of the Company, meets with management, internal auditors, the

actuary and external auditors (all of whom have unrestricted access and the opportunity to have private meetings with the Audit

Committee), and reviews the financial statements. The Audit Committee then submits its report to the Board recommending its approval of

the financial statements.

The Company's appointed actuary is required to conduct a valuation of policy liabilities in accordance with Canadian generally accepted

actuarial standards, reporting his results to management and the Audit Committee.

The Office of the Superintendent of Financial Institutions Canada ("OSFI") makes an annual examination and inquiry into the affairs of the

insurance subsidiary of the Company as deemed necessary to ensure that the Company is in sound financial condition and that the interests

of the policyholders are protected under the provisions of the Insurance Companies Act (Canada).

The Company's external auditors, KPMG LLP, Chartered Professional Accountants, conduct an independent audit of the consolidated

financial statements of the Company and meet both with management and the Audit Committee to discuss the results of their audit. The

auditors' report to the shareholders appears on the following page.

Stuart Levings President and Chief Executive Officer

Philip Mayers Senior Vice-President and Chief Financial Officer

Toronto, Canada


Independent auditors’ reportManagement’s discussion and analysis (continued) For the year ended December 31, 2015


To the Shareholders of Genworth MI Canada Inc.

We have audited the accompanying consolidated financial statements of Genworth MI Canada Inc., which comprise the consolidated

statements of financial position as at December 31, 2015 and 2014, the consolidated statements of income, comprehensive income,

changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other

explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with

International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation

of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in

accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and

plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material

misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of

the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control

relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Genworth

MI Canada Inc. as at December 31, 2015 and 2014, and its consolidated financial performance and its consolidated cash flows for the years

then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants

February 4, 2016

Toronto, Canada


Consolidated statements of financial position

(In thousands of Canadian dollars)


December 31, 2015 and 2014 Notes 2015 (1) (2) 2014 (1) (2)

Assets

Cash and cash equivalents 9 $ 390,796 $ 190,375

Short-term investments 9 78,178 84,933

Accrued investment income and other receivables 28,130 30,099

Derivative financial instruments 9 — 303

Bonds and debentures 9 5,200,715 4,997,359

Preferred shares 9 247,717 —

Common shares 9 — 170,456

Collateral receivable under reinsurance agreement 6(e) — 28,446

Total invested assets, accrued investment income and other receivables 5,945,536

5,501,971

Income taxes recoverable 15,670 6,465

Subrogation recoverable 6(c) 61,244 66,976

Prepaid assets 2,456 2,924

Property and equipment 1,088 1,335

Intangible assets 15 9,084 7,461

Deferred policy acquisition costs 6(d) 193,070 172,289

Goodwill 17 11,172 11,172

Total assets $ 6,239,320 $ 5,770,593

Liabilities and Shareholders' equity

Liabilities:

Accounts payable and accrued liabilities $ 65,750 $ 41,557

Loss reserves 6(b) 131,577 115,493

Share-based compensation liabilities 14 8,496 16,764

Derivative financial instruments 9 83,861 23,298

Long-term debt 19 432,504 432,137

Unearned premium reserves 6(a) 2,020,993 1,798,568

Accrued net benefit liabilities under employee benefit plans 13 37,241 36,307

Deferred tax liabilities 10 39,005 35,122

Total liabilities 2,819,427 2,499,246

Shareholders' equity:

Share capital 18 1,366,374 1,384,558

Retained earnings 1,926,949 1,701,707

Accumulated other comprehensive income 126,570 185,082

Total shareholders' equity 3,419,893 3,271,347

Total liabilities and shareholders' equity $ 6,239,320 $ 5,770,593

(1) Refer to note 21 for a presentation of assets and liabilities expected to be recovered or settled after 12 months.(2) Refer to note 9 for the invested assets that have been loaned under the company's securities lending programSee accompanying notes to the consolidated financial statements.

On behalf of the Board:

Brian Hurley Brian Kelly Director Director


Consolidated statements of income

(In thousands of Canadian dollars, except per share amounts)


Years ended December 31,2015 and 2014

Notes 2015 2014

Premiums written 6(a)(e) $ 808,621 $ 639,761

Premiums earned 6(a)(e) $ 586,196 $ 564,961

Losses on claims 6(b) 121,910 111,110

Expenses:

Premium taxes and underwriting fees 59,968 49,417

Employee compensation 40,239 44,063

Office 17,382 16,275

Professional fees 4,818 4,382

Promotional and travel 5,319 5,667

Other 1,420 1,473

Total expenses 129,146 121,277

Net change in deferred policy acquisition costs 6(d) (20,781) (13,862)

Net expenses 108,365 107,415

Net underwriting income 355,921 346,436

Investment income:

Interest 164,864 171,582

Dividends 8,435 6,010

Net investment gains 31,987 21,875

Total investment income 205,286 199,467

General investment expenses (4,396) (4,345)

200,890 195,122

Interest expense 19 22,774 23,686

Fee on early redemption of long-term debt 19 — 7,249

Income before income taxes 534,037 510,623

Income taxes: 10

Current 132,595 137,536

Deferred 3,140 (3,457)

135,735 134,079

Net income for the year attributable to owners of the Company $ 398,302 $ 376,544

Earnings per share: 20 Basic $ 4.32 $ 3.97

Diluted $ 4.22 $ 3.97

See accompanying notes to the consolidated financial statements.


Consolidated statements of comprehensive income (In thousands of Canadian dollars)


Years ended December 31, 2015 and 2014 2015 2014

Net income $ 398,302 $ 376,544

Other comprehensive income (loss): Items that will not be reclassified subsequently to income: Re-measurement of employee benefit obligations, net of income tax of $743 (2014 - $1,834)

2,028 (5,079)

Items that may be reclassified subsequently to income: Net change in fair value of Available-for-Sale ("AFS") financial assets, net of income tax of $12,101 (2014 - $24,919)

(31,523) 71,743

Gains on AFS financial assets realized and reclassified to income, net of income tax of $9,939 (2014 - $3,718) (26,989 (10,704)

Total other comprehensive income (loss) for the period attributable to owners of the Company, net of income tax of $21,297 (2014 - $19,367)

(56,484) 55,960

Total comprehensive income attributable to owners of the Company $ 341,818 $ 432,502



Consolidated statements of changes in equity

(In thousands of Canadian dollars, except per share amounts)



Share capital Retained earnings

Accumulated other comprehensive

income

Total shareholders'

equity

Balance at January 1, 2015 $ 1,384,558 $ 1,701,707 $ 185,082 $ 3,271,347

Comprehensive income:

Net income — 398,302 — 398,302

Other comprehensive income (loss) — — (56,484) (56,484)

Total comprehensive income — 398,302 (56,484) 341,818

Total transactions recognized directly in equity:

Dividends on common shares(1) — (146,702) — (146,702)

Issuance of common shares 3,437 — — 3,437

Repurchase of common shares (note 18) (21,621) (28,386) —

(50,007)

Re-measurement of employee benefit obligations, net of income tax —

2,028

(2,028) —

Total transactions recognized directly in equity (18,184) (173,060) (2,028) (193,272)

Balance at December 31, 2015 $ 1,366,374 $ 1,926,949 $ 126,570 $ 3,419,893

Share capital

Retained earnings

Accumulated other comprehensive

income (loss)

Total shareholders’ equity

Balance at January 1, 2014 $ 1,408,213 $ 1,555,062 $ 124,043 $ 3,087,318

Comprehensive income:

Net income — 376,544 — 376,544

Other comprehensive income (loss) — — 55,960 55,960

Total comprehensive income — 376,544 55,960 432,504

Total transactions recognized directly in equity:

Dividends on common shares(1) — (177,652) — (177,652)

Issuance of common shares 4,186 — — 4,186

Repurchase of common shares (note 18) (27,841) (47,168) —

(75,009)

Re-measurement of employee benefit obligations, net of income tax —

(5,079) 5,079

—

Total transactions recognized directly in equity

(23,655) (229,899) 5,079 (248,475)

Balance at December 31, 2014 $ 1,384,558 $ 1,701,707 $ 185,082 $ 3,271,347

(1) The Company paid dividends of $0.39 per common share in the first, second and third quarters of 2015 and $0.42 per common share in the fourth quarter of 2015 ($0.35 per common share in the first, second and third quarters of 2014 and $0.39 per common share in the fourth quarter of 2014 and a special dividend of $0.43 per common share in the fourth quarter of 2014).



Consolidated statements of cash flows

(In thousands of Canadian dollars)



2015 2014

Cash provided by (used in): Operating activities:

Net income $ 398,302 $ 376,544 Adjustments for:

Amortization of intangible assets and depreciation of property and equipment 2,370 3,638 Expensing of deferred policy acquisition costs 58,120 53,050 Income taxes 135,735 134,079 Interest income (164,864) (171,582) Dividend income (8,435) (6,010) Net investment gains (31,987) (21,875) Interest expense 22,774 23,686 Share-based compensation expense net of equity total return swap re-measurement (309) 6,305

411,706 397,835 Change in non-cash balances related to operations:

Cash collateral received from the termination of reinsurance agreement 28,224 — Accrued investment income and other receivables (1,088) (1,155) Prepaid assets 468 211 Subrogation recoverable 5,732 8,478 Deferred policy acquisition costs (78,901) (66,912) Accounts payable and accrued liabilities 23,826 7,787 Loss reserves 16,084 (1,895) Unearned premium reserves 222,425 74,800 Accrued net benefit liabilities under employee benefit plans 3,703 2,830

632,179 421,979 Cash generated from (used in) operating activities:

Interest received from bonds and debentures 176,484 184,615 Dividends received from preferred shares and common shares 9,028 6,057 Interest paid on long-term debt (22,407) (21,598) Income taxes paid (119,760) (390,013) Share-based compensation awards settled in cash (1,849) (1,752) Settlement of foreign currency forwards and cross currency interest rate swaps (4,533) — Settlement of equity total return swaps (2,450) —

Net cash generated from operating activities 666,692 199,288 Financing activities:

Net proceeds from issuance of long-term debt — 158,635 Repayment of long-term debt — (150,000) Dividends paid (146,702) (177,652) Repurchase of common shares (50,007) (75,009) Proceeds from exercise of stock options 1,843 1,924

Net cash used in financing activities (194,866) (242,102) Investing activities:

Purchase of short-term investments (336,517) (317,096) Proceeds from sale or maturities of short-term investments 343,272 271,812 Purchase of bonds (1,406,015) (1,371,268) Proceeds from sale or maturities of bonds 1,241,415 1,405,182 Purchase of preferred shares (290,539) — Proceeds from sale of preferred shares 11,292 — Purchase of common shares (8,953) (58,126) Proceeds from sale of common shares 178,386 93,378 Purchase of intangible assets and property and equipment (3,746) (4,385)Net cash generated from (used in) investing activities (271,405) 19,497

Increase (decrease) in cash and cash equivalents 200,421 (23,317) Cash and cash equivalents, beginning of year 190,375 213,692

Cash and cash equivalents, end of year $ 390,796 $ 190,375



Notes to consolidated financial statements (In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014


1. Reporting entity:

Genworth MI Canada Inc. (the "Company") was incorporated under the Canada Business Corporations Act on May 25, 2009 and is

domiciled in Canada. Its shares are publicly traded on the Toronto Stock Exchange under the symbol "MIC". The Company's

registered office is located at Suite 300, 2060 Winston Park Drive, Oakville, Ontario, L6H 5R7, Canada.

Genworth Financial Inc., a public company listed on the New York Stock Exchange, indirectly holds approximately 57.3% of the

common shares of the Company.

The Company holds a 100% ownership interest in the holding companies Genworth Canada Holdings I Company ("Holdings I"),

Genworth Canada Holdings II Company ("Holdings II"), and MIC Holdings G Company ("Gco"). During the year ended

December 31, 2015, MIC Holdings F Company ("Fco") was wound up as part of a corporate reorganization undertaken by the

Company. The Company also holds an indirect 100% ownership interest in Genworth Financial Mortgage Insurance Company

Canada (the "Insurance Subsidiary") through Holdings I and Holdings II. These consolidated financial statements as at and for the

year ended December 31, 2015 reflect the consolidation of the Company and these subsidiaries. Additional information on the

reporting and consolidation structure is disclosed in note 11(b).

The Insurance Subsidiary is engaged in mortgage insurance in Canada and owns all of the issued and outstanding shares of MIC

Insurance Company Canada ("MICICC"). MICICC is licensed to service policies originated prior to its acquisition by the Company in

2012, and underwrite reinsurance limited to the class of mortgage insurance.

The Insurance Subsidiary is subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act

("PRMHIA"). Under the terms of PRMHIA, the Canadian federal government guarantees the benefits payable under eligible

mortgage insurance policies issued by the Insurance Subsidiary, less 10% of the original principal amount of each insured loan, in

the event that the Insurance Subsidiary fails to make claim payments with respect to that loan due to its bankruptcy or insolvency.

The Insurance Subsidiary and MICICC are regulated by the Office of the Superintendent of Financial Institutions Canada ("OSFI")

as well as applicable provincial financial services regulators.


Notes to consolidated financial statements (continued) (In thousands of Canadian dollars, except per share amounts) Years ended December 31, 2015 and 2014


2. Basis of presentation:

(a) Statement of compliance:

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"), as

issued by the International Accounting Standards Board ("IASB").

These consolidated financial statements were approved by the Board of Directors on February 3, 2016.

(b) Basis of measurement:

These consolidated financial statements have been prepared on the historical cost basis except for the following material items in

the consolidated statements of financial position:

(i) Available-for-Sale ("AFS") short-term investments, bonds and debentures, preferred shares and common shares are measured

at fair value;

(ii) Subrogation rights related to real estate included in subrogation recoverable are measured at the fair value of the real estate

assets at the reporting date less costs for obtaining the rights to and selling the real estate;

(iii) Derivative financial instruments, which are comprised of foreign currency forwards, cross currency interest rate swaps, and

equity total return swaps are measured at fair value;

(iv) Accrued benefit liabilities under employee benefit plans are recognized at the present value of the defined benefit obligations;

(v) Liabilities for cash-settled share-based compensation are measured at fair value; and

(vi) Loss reserves and borrower recoveries included in subrogation recoverable are discounted and include an actuarial margin for

adverse deviation.

(c) Functional and presentation currency:

These consolidated financial statements are presented in Canadian dollars, which is the Company's functional currency. All

financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts.

(d) Use of estimates and judgments:

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the

application of accounting policies and the reported amounts of assets and liabilities at the date of the consolidated financial

statements and the reported amounts of income and expenses during the year. Actual results may differ from estimates made.

See note 5 for a description of the significant judgments and estimates made by the Company.




3. Significant accounting policies:

(a) Basis of consolidation:

(i) Business combinations:

Business combinations are accounted for using the acquisition method as at the acquisition date, when control is transferred to

the Company.

The Company measures goodwill at the acquisition date as the fair value of consideration transferred less the net recognized

amount of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is

recognized immediately in income.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection

with a business combination are expensed as incurred.

Interest in consolidated subsidiaries is disclosed in note 11(b).

(ii) Subsidiaries:

Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated

financial statements from the date that control commences until the date control ceases. Intra-group balances and transactions

are eliminated in preparing consolidated financial statements.

(b) Insurance contracts:

The items in the Company's consolidated financial statements that are derived from insurance contracts are premiums, losses on

claims, subrogation recoveries, deferred policy acquisition costs and reinsurance. Each of these items is described below.

(i) Premiums written, premiums earned and unearned premium reserves:

Mortgage insurance premiums are deferred and then taken into underwriting revenues over the terms of the related policies. The

unearned portion of premiums is included in the liability for unearned premium reserves. The majority of policies to date have

been written for terms of 25 to 35 years. The rates or formulae under which premiums are earned are based on the loss

emergence pattern in each year of coverage. The Company performs actuarial studies and adjusts the formulae under which

premiums are earned in accordance with the results of such studies. This includes adjustments to earnings from premium

written in respect of prior periods.

A premium deficiency provision, if required, is determined as the excess of the present value of expected future losses on claims

and expenses (including policy maintenance expenses) on policies in force (using an appropriate discount rate) over unearned

premium reserves.




3. Significant accounting policies (continued):

(b) Insurance contracts (continued):

(ii) Risk fee:

In conjunction with receiving credit support in the form of the Government of Canada guarantee, as prescribed in the PRMHIA,

the Company is subject to a risk fee equal to 2.25% of gross premiums written excluding reinsurance premiums. The Company

records the risk fee in premium taxes and underwriting fees in the consolidated statements of income. The risk fee relates

directly to the acquisition of new mortgage insurance business. Accordingly, it is subsequently deferred and expensed in

proportion to and over the period in which premiums are earned (note 3(b)(v)) and reflected in Deferred Policy Acquisition Costs.

(iii) Losses on claims and loss reserves:

Losses on claims include internal and external claims adjustment expenses and are recorded net of amounts received or expected

to be received from recoveries.

Loss reserves represent the amount needed to provide for the expected ultimate net cost of settling claims including adjustment

expenses related to defaults by borrowers (both reported and unreported) that have occurred on or before each reporting date.

Loss reserves are discounted to take into account the time value of money. The Company records a supplemental provision for

adverse deviation based on an explicit margin for adverse deviation developed by the Company's appointed actuary.

Loss reserves are derecognized after a claim has been paid and the Company's obligation under the policy has been fulfilled, or

after a borrower has remedied a delinquent loan and management estimates that no loss will be incurred under the policy.

(iv) Subrogation recoveries and subrogation recoverable:

Subrogation rights related to real estate are carried in subrogation recoverable at the fair value of the real estate assets less costs

for obtaining the rights to and selling the real estate.

Estimated borrower recoveries related to claims paid and loss reserves are recognized in subrogation recoverable net of

estimated administrative fees associated with collection. Borrower recoveries are discounted to take into account the time value

of money and include an explicit margin for adverse deviation.





(b) Insurance contracts (continued):

(v) Deferred policy acquisition costs:

Deferred policy acquisition costs comprise premium taxes, appraisal costs, risk fee, certain employee compensation, and other

expenses that relate directly to acquisition of new mortgage insurance business. Policy acquisition costs related to unearned

premiums are deferred to the extent that they can be expected to be recovered from the unearned premium reserves and are

expensed in proportion to and over the periods in which the premiums are earned.

(vi) Reinsurance:

Reinsurance contracts are those contracts under which the reinsurer agrees to indemnify the cedant against all or part of the

primary insurance risks underwritten by the cedant under one or more insurance contracts.

Reinsurance premiums are taken into underwriting revenues over the terms of the related reinsurance agreements. Reinsurance

premiums are reported in premiums written and premiums earned in the consolidated statements of income.

Unpaid reinsurance premiums, if any, are reported in accrued investment income and other receivables on the consolidated

statements of financial position.





(c) Financial instruments:

The Company recognizes financial assets on the trade date, at which the Company becomes a party to the contractual provisions

of the financial asset contract.

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers

the rights to receive contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of

ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the

Company is recognized as a separate asset or liability.

Financial assets and liabilities are offset and the net amount is presented in the statements of financial position when the

Company has a legally enforceable right to offset the amounts and intends either to settle on a net basis or to realize the asset

and settle the liability simultaneously.

(i) Cash and cash equivalents:

Cash and cash equivalents are comprised of deposits in banks, treasury bills, and other highly liquid investments, with original

maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant

risk of changes in value.

(ii) Financial assets at fair value through profit and loss:

A financial asset is classified as fair value through profit and loss ("FVTPL") if it is considered to be held for trading or it is

designated as such upon initial recognition. The Company has classified its derivative financial instruments as FVTPL at

December 31, 2015 and 2014 (note 3(e)).

FVTPL financial assets are recorded at fair value with realized gains and losses on sale and changes in the fair value recorded in

income. Transaction costs related to FVTPL financial assets are recognized in income as incurred.





(c) Financial instruments (continued):

(iii) AFS financial assets:

AFS financial assets are non-derivative financial assets that are designated as AFS and are not classified in any other specific

financial asset category. As at December 31, 2015 and 2014, the Company classifies bonds and debentures, preferred shares,

short-term investments and common shares in the AFS financial asset category.

AFS financial assets are recorded at fair value with changes in the fair value of these assets recorded in other comprehensive

income ("OCI"). Cumulative realized gains and losses on sale and cumulative realized gains and losses on AFS instrument

derecognition, as well as impairment losses, are reclassified from accumulated other comprehensive income ("AOCI") and

recorded in investment income. Investment gains or losses on sale of investments are measured at the difference between cash

proceeds received and the amortized cost of a bond or preferred share or the cost of a common share. Transaction costs are

capitalized as part of the carrying value of the AFS financial assets.

Re-measurement adjustments arising on translation of AFS bonds denominated in U.S. dollars to Canadian dollars are recognized

in net investment gains or losses in accordance with the accounting policy for foreign currency translation in note 3(n).

(iv) Loans and receivables:

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such

assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans

and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and

receivables comprise cash and cash equivalents, accrued investment income and other receivables and collateral receivable under

reinsurance agreement.





(c) Financial instruments (continued):

(v) Non-derivative financial liabilities:

All non-derivative financial liabilities are recognized initially on the date that the Company becomes a party to the contractual

provisions of the financial instrument.

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The

Company classifies all non-derivative financial liabilities into the Other financial liabilities category. Such financial liabilities are

recognized initially at fair value along with any directly attributable transaction costs. Subsequent to initial recognition, these

financial liabilities are measured at amortized cost using the effective interest method.

Non-derivative financial liabilities are comprised of the Company's long-term debt (note 19) and accounts payable and accrued

liabilities including balances due to the Company's majority shareholder and companies under common control (note 11(c)).

(d) Securities lending:

The Company includes its invested assets in its securities lending program. Securities lending transactions are entered into on a

fully collateralized basis. The transferred securities themselves are not derecognized on the consolidated statements of financial

position given that the risks and rewards of ownership are not transferred from the Company to the counterparties in the course

of such transactions. The securities are reported separately on the consolidated statements of financial position on the basis that

counterparties may resell or re-pledge the securities during the time that the securities are in their possession.

Securities received from counterparties as collateral are not recorded on the consolidated statements of financial position given

that the risk and rewards of ownership are not transferred from the counterparties to the Company in the course of such

transactions and because cash collateral is not permitted as an acceptable form of collateral under the program.





(e) Derivative financial instruments:

Derivative financial instruments are financial contracts whose value is derived from an underlying interest rate, foreign exchange

rate, equity or commodity instrument or index. Derivative financial instruments are classified as FVTPL and are recognized in the

consolidated statements of financial position as assets when their fair value is positive and as liabilities when their fair value is

negative. While the Company has the ability to settle multiple financial derivative instruments on a net basis under a master

netting arrangement, the Company does not meet the accounting requirements to offset derivative assets and liabilities.

Accordingly, each derivative financial instrument is presented as an asset or liability based on the fair value of the individual

instrument. Derivative financial instruments include foreign currency forwards, cross currency interest rate swaps and equity total

return swaps.

Changes in fair value of derivative financial instruments are generally recognized in net investment gains or losses during the

period in which they arise. However, when an economic hedge relationship has been established between the derivative

financial instruments and certain expenses, the changes in fair value are recognized in expenses during the period in which they

arise.

(f) Interest income:

Interest income from fixed income investments including short-term investments and bonds and debentures is recognized on an

accrual basis using the effective interest method and reported as interest in investment income.

Lending fees received under the Company's securities lending program are recognized on an accrual basis and reported in

investment income.

Interest income from impaired fixed income investments is recognized using the rate of interest used to discount the future cash

flows for the purpose of measuring the impairment loss. Such interest is recognized only if the Company expects the interest to

be received based on the financial condition of the fixed income investment issuer.

(g) Dividend income:

Dividends on preferred and common shares are recognized when the shareholder's right to receive payment is established, which

is the ex-dividend date, and are reported as dividends in investment income.





(h) Property and equipment:

(i) Recognition and measurement:

Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes

all expenditures that are directly attributable to acquiring the asset and preparing it for its intended use. When parts of an item of

property and equipment have different useful lives, they are accounted for as separate items (major components) of property and

equipment. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from

disposal with the carrying amount of the property and equipment, and are recognized on a net basis in income.

The Company classifies computer software that is part of an operating system or is an integral part of related hardware as

property and equipment.

(ii) Subsequent costs:

Property and equipment replacements are recognized in the carrying amount of property and equipment if they embody future

economic benefit to the Company and the carrying amount of the replaced part is derecognized. The costs of day-to-day servicing

of property and equipment are expensed as incurred.

(iii) Depreciation:

Depreciation on property and equipment, except for leasehold improvements, is recognized in income on a straight-line basis over

the estimated useful lives of each component of an item of property and equipment from the date it is available for use. Straight-

line depreciation most closely reflects the expected pattern of consumption of the future economic benefits embodied in the

property and equipment. Leasehold improvements are depreciated over the terms of the related leases.





(i) Intangible assets:

(i) Goodwill:

Goodwill arises upon the acquisition of subsidiaries. See note 3(a)(i) for the policy on measurement of goodwill on initial

recognition. Subsequent to initial recognition, goodwill is measured at cost less accumulated impairment losses. See note 3(j)(ii)

for the policy on measurement of impairment losses on non-financial assets, including goodwill.

(ii) Other intangible assets:

(i) Recognition and measurement:

Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. The

Company's intangible assets consist of computer application software that is not an integral part of related hardware.

(ii) Subsequent expenditures:

Subsequent expenditures are recognized in the carrying amount of intangible assets if they embody future economic

benefit to the Company. All other costs including the costs of day-to-day servicing of intangible assets are expensed as

incurred.

(iii) Amortization:

Amortization is recognized in expense on a straight-line basis over the estimated useful lives of intangible assets from

the date that they are available for use, since this most closely reflects the expected pattern of consumption of the

future economic benefits embodied in the assets.





(j) Impairment:

(i) Impairment of financial assets:

Financial assets not carried at FVTPL are assessed at each reporting period to determine whether there is existence of objective

evidence of impairment.

Bonds and debentures and preferred shares are assessed for impairment if objective evidence indicates that a loss event has

occurred after the initial recognition of the asset. Loss events include default or delinquency of the debtor, indications that the

issuer of a security will enter bankruptcy, significant deterioration of credit quality and economic conditions that correlate with

defaults or the disappearance of an active market for a security. Impairment is deemed to exist when the Company does not

expect full recovery of the amortized cost of the investment based on the estimate of cash flows expected to be collected or

when the Company intends to sell the investment prior to recovery from its unrealized loss position.

Common shares are deemed to be impaired when it is determined that the common shares have experienced significant or

prolonged losses.

Impairment losses on AFS financial assets are recognized by reclassifying losses from accumulated other comprehensive income

("AOCI") to income. The cumulative loss that is reclassified from AOCI to income is the difference between the acquisition cost,

net of any principal repayment and amortization, and the current fair value, less any impairment loss recognized previously in

income. Changes in impairment provisions attributable to time value are reflected as a component of investment income. If, in a

subsequent period, the fair value of an impaired AFS bond or preferred share increases and the increase can be related objectively

to an event occurring after the impairment loss was recognized in income, then the impairment loss is reversed, with the amount

of the reversal recognized in income. However, any subsequent recovery in fair value of an impaired AFS equity investment is

recognized in other comprehensive income ("OCI").

(ii) Impairment of non-financial assets:

The carrying amounts of the Company's non-financial assets are reviewed at each reporting period to determine whether there is

any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is

recognized if the carrying amount of an asset exceeds its estimated recoverable amount.





(j) Impairment (continued):

(ii) Impairment of non-financial assets (continued):

Goodwill is tested for impairment on an annual basis regardless of whether an indication of impairment exists. The recoverable

amount of an asset is the greater of its value in use and its fair value less expected selling costs. In assessing value in use, the

estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset. For purposes of goodwill impairment testing, the

comparison of estimated recoverable amount to carrying amount is performed on the Company's single cash-generating unit

("CGU"), which is its mortgage insurance business. Impairment losses are recognized in income in the period in which the

impairment is determined. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of

goodwill and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis. An impairment loss in

respect of goodwill is not reversed.

The assessment of impairment of non-financial assets excludes assessment of deferred policy acquisition costs. The ability of

the Company to recover its deferred policy acquisition costs is assessed as part of the Company's overall insurance liability

adequacy testing. In the event that a provision for premium deficiency is required based on this test, the deferred policy

acquisition cost asset is reduced with a corresponding charge recognized as deferred policy acquisition expense.

(k) Income taxes:

Income taxes are comprised of current and deferred taxes. Current and deferred taxes associated with items recognized in equity

are recognized directly in equity. Taxes on fair value gains and losses and actuarial gains and losses from re-measurement of

defined benefit plans included in OCI are recorded directly in OCI. Otherwise, except to the extent that they relate to a business

combination, current and deferred taxes are recognized in income.

(i) Current tax:

Current taxes are recognized for estimated income taxes payable or recoverable for the current year and any adjustments to taxes

payable in respect of prior years. The tax rates and laws used to compute these amounts are those that are enacted or

substantively enacted at the date of the consolidated financial statements.





(k) Income taxes (continued):

(i) Current tax (continued):

Current taxes payable and current taxes recoverable are offset when they relate to income taxes imposed by the same taxation

authority for the same legal entity and the taxation authority permits making or receiving a single net payment.

(ii) Deferred tax:

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial

reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a transaction that is not

a business combination and that affects neither accounting nor taxable income or loss, temporary differences related to

investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future, and taxable

temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at

the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred taxes are measured using currently enacted or substantively enacted income tax rates expected to apply to taxable

income in the periods in which the temporary differences reverse. The most significant temporary difference relates to policy

reserves.

Deferred tax assets are recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is

probable the Company will have sufficient taxable income against which they can be used. The deferred tax assets are reviewed

each reporting period and are reduced to the extent that it is no longer probable that the benefit arising from the unused tax loss,

tax credit or deductible temporary difference will be realized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax liabilities and

assets and they relate to income taxes imposed by the same taxation authority for the same legal entity.





(l) Employee benefits:

(i) Defined contribution pension plan:

The defined contribution pension plan is a post-employment benefit plan under which the Company pays fixed contributions into

the plan (that is a separate legal entity) which are held in trust for the benefit of its employees and will have no legal or

constructive obligation to pay further amounts. The obligation for contributions to the defined contribution pension plan is

recognized as an expense in the period during which services are provided by employees.

(ii) Defined benefit plans:

A defined benefit plan is a post-employment plan other than a defined contribution plan. The Company currently maintains two

defined benefit plans: a Supplemental Executive Retirement Plan ("SERP") and a plan for non-pension post-retirement benefits.

The Company's obligation in respect of each plan is calculated separately. For each plan, the Company has adopted the following

policies:

Actuarial valuations of benefit liabilities for pension and non-pension post-retirement benefit plans are performed as at December

31 of each year using the projected unit credit method and based on management's assumptions including assumptions on the

discount rate, rate of compensation increase, mortality and the trend in the health care cost rate. For the non-pension post-

retirement benefits plan, membership data is updated every three years.

Obligations for the SERP are attributed to the period beginning on the employee's date of joining the plan and ending on the

earlier of termination, death or retirement. Obligations for non-pension post-retirement benefits are attributed to the period

beginning on the employee's date of hire to the date the employee reaches the age of 55 and is eligible for benefits under the

plan.

Actuarial gains and losses arising from changes in actuarial assumptions used to determine the benefit obligations or experience

adjustments are recognized in OCI in the period in which they arise, and reported in retained earnings.

Prior service costs arising from plan amendments are recognized in expense in the period in which the plan amendments are

introduced.

The Company recognizes gains or losses on settlement of a defined benefit obligation when a settlement occurs. The gain or

loss is comprised of any change in the present value of the defined benefit obligation and any changes in actuarial gains and

losses that had not been previously recognized.





(l) Employee benefits (continued):

(iii) Short-term employee compensation and benefits:

Short-term employee compensation and benefit obligations, including the Company's short-term bonus, are measured on an

undiscounted basis and are expensed as the related service is provided.

(iv) Share-based compensation:

The Company's share-based awards include stock options with tandem stock appreciation rights ("Options"), Restricted Share

Units ("RSUs"), Performance Share Units ("PSUs"), Directors' Deferred Share Units ("DSUs") and Executive Deferred Share Units

("EDSUs"). Recipients of Options have choice of settlement in cash or shares of the Company. RSUs, DSUs, and PSUs are

settled in cash or shares of the Company at the discretion of the Company's Board of Directors. EDSUs are settled in cash.

The fair value of Options, RSUs, PSUs, DSUs and EDSUs is recognized as compensation expense over the relevant vesting

period, with a corresponding entry to share-based compensation liabilities. The liabilities are re-measured at each reporting date

and the settlement date. Any changes in the fair value of the liabilities are recognized as compensation expense. Share-based

compensation is reclassified from liability to equity if shares are selected when the awards are exercised.

Options are measured at fair value using the Black-Scholes valuation model. RSUs, PSUs, DSUs and EDSUs are measured at fair

value using the quoted market price of the Company's shares at the end of each reporting period.

RSUs, PSUs, DSUs and EDSUs may participate in dividend equivalents at the discretion of the Company's Board of Directors.

Dividend equivalents are calculated based on the fair value of the Company's shares on the date the dividend equivalents are

credited to the RSU, PSU, DSU or EDSU account.

Share-based awards are recorded as expense only to the extent that management expects such awards to vest based on service

and performance conditions attached to the share-based awards.

The Company economically hedges the impact of the change in fair value of its common shares by entering into equity total

return swaps. Changes in fair value of the equity total return swaps are recognized in employee compensation expense in the

statements of income.





(m) Share capital:

Common shares are classified as equity on the consolidated statements of financial position. Incremental costs directly

attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

(n) Foreign currency translation:

Transactions in foreign currencies are translated to Canadian dollars at the date of the transactions. Monetary assets and liabilities

denominated in foreign currencies at the reporting date are translated to Canadian dollars at period end rates. Foreign currency

differences arising on translation are recognized in income. The Company does not have any non-monetary assets or liabilities

denominated in foreign currencies.

(o) Fair value measurement:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date. A fair value hierarchy is applied to all fair value measurements including

non-financial assets and liabilities that are measured at or based on fair value in the consolidated statements of financial position.

The Company's fair value hierarchy is disclosed in note 22.

(p) Earnings per share:

The Company presents basic and diluted earnings per share for its common shares. Basic earnings per share are calculated by

dividing the Company's net income for the period by the weighted average number of shares outstanding during the period.

Diluted earnings per share are determined by adjusting the weighted average number of shares outstanding for the effects of all

dilutive potential shares, which are comprised of share-based compensation awards granted to employees and directors of the

Company, and by adjusting net income for the period by the share based compensation re-measurement amount, if the impact of

such an adjustment is dilutive.




4. Changes in accounting standards:

Future accounting standards:

(i) IFRS 9 - Financial instruments ("IFRS 9"):

In July 2015, the IASB published an amended version of IFRS 9, which replaces IAS 39 -Financial instruments: recognition and

measurement, and includes guidance on the classification and measurement of financial instruments, impairment of financial

assets, and a new general hedge accounting model. Financial asset classification is based on the cash flow characteristics and the

business model in which an asset is held. The classification determines how a financial instrument is accounted for and

measured. IFRS 9 also introduces a single impairment model for financial instruments not measured at fair value through profit or

loss that requires recognition of expected credit losses at initial recognition of a financial instrument and the recognition of full

lifetime expected credit losses if certain criteria are met. The new model for hedge accounting aligns hedge accounting with risk

management activities.

While the new standard is generally effective for years beginning on after January 1, 2018, in December 2015 the IASB published

an Exposure Draft Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts, which proposes to allow some insurers

optional transitional relief until the forthcoming insurance accounting standard is available for implementation. The proposed

options would allow (a) entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4 to defer the

implementation of IFRS 9 to as late as January 1, 2021, which may allow alignment of the implementation of IFRS 9 with the

forthcoming insurance accounting standard, or alternatively (b) give entities issuing insurance contracts the option to remove from

profit or loss the incremental volatility caused by changes in the measurement of specified financial assets upon application of

IFRS 9.

The Company is evaluating the impact of IFRS 9 on its financial assets and financial liabilities and the option for the deferral of

IFRS 9 adoption.

(ii) IFRS 4 - Insurance contracts ("IFRS 4"):

In June 2014, the IASB issued a revised exposure draft proposing a comprehensive measurement approach for all types of

insurance contracts, which would replace the existing IFRS 4 - Insurance contracts. Deliberations of the exposure draft continue

and a final standard is expected to be issued in late 2016. The effective date of the final standard is not expected to be before

2020.

The Company is monitoring the development of IFRS 4 and assessing the impact of its adoption.

(iii) IFRS 16 - Leases ("IFRS 16"):

IFRS 16 was issued on January 13, 2016. The new standard will replace existing lease guidance in IFRS and related

interpretations, and requires companies to bring most leases on-balance sheet.

The new standard is effective for years beginning on or after January 1, 2019.

The Company is currently assessing the impact of IFRS 16.




5. Significant judgments and estimates:

(a) Judgments:

Significant judgments made in applying accounting policies are as follows:

Objective evidence of impairment of AFS financial assets:

As of each reporting date, the Company evaluates AFS financial assets for objective evidence of impairment.

For investments in bonds and preferred shares, evaluation of whether impairment has occurred is based on the Company’s

assessment that a loss event has occurred and the Company’s best estimate of the cash flows to be collected at the individual

investment level. The Company considers all available information relevant to the collectability of the investment, including

information about past events, current conditions, and reasonable and supportable forecasts. Impairment assessment is a

qualitative and quantitative process that incorporates information received from third party sources along with certain internal

assumptions and judgments regarding the future performance of any underlying collateral for asset-backed investments.

Impairment for bonds and preferred shares is deemed to exist when the Company does not expect full recovery of the amortized

cost of the investment based on the estimate of cash flows to be collected or when the Company intends to sell the investment

prior to recovery from its unrealized loss position.

For common shares, the Company recognizes an impairment loss in the period in which it is determined that an investment has

experienced significant or prolonged losses.




5. Significant judgments and estimates (continued):

(b) Estimates (continued):

Information about assumptions and estimation uncertainties that have a risk of resulting in material adjustment within the next 12

months are as follows:

(i) Premiums earned:

Mortgage insurance premiums are deferred and then taken into underwriting revenues over the terms of the related policies. The

rates or formulae under which premiums are earned relate to the loss emergence pattern in each year of coverage. In order to

match premiums earned to losses on claims, premiums written are recognized as premiums earned using a factor-based

premium recognition curve.

In constructing the premium recognition curve, the Company applies actuarial forecasting techniques to historical loss data to

determine expected loss development and the related loss emergence pattern.

(ii) Losses:

Loss reserves represent the amount needed to provide for the expected ultimate net cost of settling claims including adjustment

expenses related to defaults by borrowers (both reported and unreported) that have occurred on or before the reporting date.

Loss reserves are discounted to take into account the time value of money and include a supplemental provision for adverse

deviation. Loss reserves are recognized when the first scheduled mortgage payment is missed by a mortgage borrower. In

determining the ultimate claim amount, the Company estimates the expected recovery from the property securing the insured

loan and the legal, property maintenance and other loss adjustment expenses incurred in the claim settlement process. Loss

reserves consist of individual case reserves, Incurred But Not Reported ("IBNR") reserves and supplemental loss reserves for

potential adverse deviation.

For the purpose of quantifying case reserves, the Company analyzes each reported delinquent loan on a case-by-case basis and

establishes a case reserve based on the expected loss, if any. The ultimate expected claim amount is influenced significantly by

housing market conditions, changes in property values, and the condition of properties in default.




5. Significant judgments and estimates (continued):

(b) Estimates (continued):

(ii) Losses (continued):

The Company establishes reserves for IBNR based on the reporting lag from the date of first missed payment to the reporting

date for mortgages in default that have not been reported to the Company. IBNR is calculated using estimates of expected claim

frequency and claim severity based on the most current available historical loss data, adjusted for seasonality.

In order to discount loss reserves to present value, the Company's appointed actuary determines a discount rate based on the

market yield of the Company's investment portfolio.

The Company recognizes a provision for adverse deviation based on assessment of the adequacy of the Company's loss reserves

and with reference to the current and future expected condition of the Canadian housing market and its impact on the expected

development of losses.

The process for the establishment of loss reserves relies on the judgment and opinions of a number of individuals, on historical

precedent and trends, on prevailing legal and economic trends and on expectations as to future developments. This process

involves risks that actual results will deviate, perhaps substantially, from the best estimates made. These risks vary in proportion

to the length of the estimation period and the volatility of each component comprising the liability. Refer to note 6(b) for

sensitivity analyses that quantify the exposure to changes in key loss assumptions.

(iii) Subrogation recoverable:

The Company estimates the fair value of subrogation rights related to real estate included in subrogation recoverable based on

third party property appraisals or other types of third party valuations deemed to be more appropriate for a particular property.

The Company estimates borrower recoveries related to claims paid and loss reserves included in subrogation recoverable based

on historical recovery experience. Borrower recoveries are discounted to present value and include an actuarial margin for adverse

deviation.

(iv) Deferred policy acquisition costs:

Deferred policy acquisition costs are comprised of premium taxes, appraisal costs, risk fee, certain employee compensation, and

other expenses that relate directly to acquisition of new mortgage insurance business. Deferred policy acquisition costs are

deferred and expensed in proportion to and over the periods in which premiums are earned.

The Company estimates expenses eligible for deferral based on the nature of expenses incurred and results of time and activity

studies performed to identify the portion of time the Company's employees incur in the acquisition of new mortgage insurance

business.




6. Insurance contracts:

(a) Premiums and unearned premium reserves:

Changes in unearned premium reserves recorded in the consolidated statements of financial position and their impact on

premiums earned are as follows:

2015 2014

Unearned premium reserves, beginning of year $ 1,798,568 $ 1,723,768

Premiums written during the year 808,621 639,761

Premiums earned during the year (586,196) (564,961)

Unearned premium reserves, end of year $ 2,020,993

$ 1,798,568

Key methodologies and assumptions:

Premiums written are recognized as premiums earned using a factor-based premium recognition curve that is based on the

Company's expected loss emergence pattern. The principal assumption underlying the formation of the premium recognition

curve is that the Company's future claims development will follow a similar pattern to past claims emergence patterns.

Approximately 80% of the Company's premiums written are recognized as premium earned within the first five years of policy

inception based on the current premium recognition curve. A shift in the Company's loss emergence pattern could change the

timing of the Company's recognition of earned premium and impact the Company's financial performance for a period.




6. Insurance contracts (continued):

(a) Premiums and unearned premium reserves (continued):

The Company's appointed actuary performs a liability adequacy test on the Company's unearned premium reserves using a

dynamic regression model that is in accordance with accepted actuarial practice. The purpose of the test is to ensure the

unearned premium liability at year end is sufficient to pay for future claims and expenses that may arise from unexpired insurance

contracts. The liability adequacy test for the years ended December 31, 2015 and 2014 identified a surplus in the Company's

unearned premium reserves and thus no premium deficiency reserves are required at these reporting dates.

(b) Losses on claims and loss reserves:

The carrying value of loss reserves reflects the present value of expected claims costs and expenses and provisions for adverse

deviation and is considered to be an indicator of fair value. There is no ready market for the trading of loss reserves and the value

agreed between parties in an arm's-length transaction may be materially different.

Loss reserves comprise the following:

2015 2014

Case reserves $ 83,962 $ 75,178

Incurred but not reported reserves 41,591 35,365

Discounting (1,502) (1,936)

Provision for adverse deviation 7,526 6,886

Total loss reserves $ 131,577 $ 115,493





(b) Losses on claims and loss reserves (continued):

The following table presents movement in loss reserves and the impact on losses on claims:

2015 2014

Loss reserves, beginning of year $ 115,493 $ 117,388

Claims paid during the year (105,826) (113,005 )

Net losses on claims incurred during the year:

Losses on claims related to the current year 132,945 118,498

Losses (recoveries) on claims related to prior years (11,035) (7,388 )

Loss reserves, end of year $ 131,577 $ 115,493

Claims development:

Loss reserves are established to reflect an estimate of the ultimate cost of claim settlement as at the reporting date. Given the

uncertainty in establishing the outstanding loss reserves, it is likely that the final outcome will be different than the original liability

established. Claims development refers to the financial adjustment in the current period relating to claims incurred in previous

periods because of new and more up to date information that has become available and to reflect changes in assumptions. The

information is presented on a default year basis (claims are related to the period in which the insured event occurred and not the

period in which the policy was underwritten).






The following table demonstrates the development of the estimated loss reserves for the ten most recent default years.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 total

Claims incurred at the end of

the default year $70,994 $102,549 $148,493 $196,586 $175,189 $172,200 $143,388 $132,299 $118,498 $132,945

Claims incurred one year later 46,971 106,468 200,807 218,890 193,820 193,226 141,957 128,042 112,834 —

Claims incurred two years later

54,352 112,224 204,706 247,663 217,034 196,377 140,572 126,540 — —

Claims incurred three years later

55,461 115,632 209,850 252,041 218,884 195,903 140,196 — — —

Claims incurred four years later 56,072 115,816 212,615 255,282 218,088 194,969 — — — —

Claims incurred five years later

55,701 115,427 212,595 254,725 217,036 — — — — —

Claims incurred six years later 55,701 115,427 212,595 253,795 — — — — — —

Current estimate of claims incurred $55,701 $115,427 $212,595 $253,795 $217,036 $194,969 $140,196 $126,540 $112,834 $132,945 $1,562,038

Cumulative payments to date 55,701 115,427 212,595 252,995 216,915 194,757 139,489 123,872 94,447 24,263 1,430,461

Current loss reserves $ — $ — $ — $800 $121 $212 $707 $2,668 $18,387 $108,682 $131,577

Current estimate of surplus (deficiency)

$15,293 $(12,878) $(64,102) $(57,209) $(41,847) $(22,769) $3,192 $5,759 $5,664 $ —

Surplus (deficiency) of initial gross loss reserve

22% (13)% (43)% (29)% (24)% (13)% 2% 4% 5% —






Conditions and trends that have affected the development of liabilities in the past may or may not occur in the future and,

accordingly, conclusions about future results may not necessarily be derived from the information presented in the table above.

Key methodologies and assumptions:

The establishment of loss reserves is based on known facts and interpretation of circumstances. The principal methodologies

and assumptions underlying loss reserve estimates are as follows:

(i) Claim frequency:

Claim frequency is the portion of delinquencies (both reported and unreported) that are expected to result in paid claims, after

estimated cures have been deducted. A cure is defined as a reported delinquency that closes with no claim payment or only

nominal loss adjustment expenses. Claim frequency is influenced by labour market performance and changes in house prices.

The Company estimates claim frequency for case reserves by analyzing individual reported delinquencies. The Company

estimates claim frequency for incurred but not reported delinquencies by applying average delinquency-to-paid-claim ratios to

historical reported delinquencies, derived from tracking and analyzing loss development over time.

(ii) Claim severity:

Claim severity is influenced by the performance of the housing market and will increase in a period of property value declines.

The Company estimates claim severity for case reserves by analyzing individual reported delinquencies, including obtaining

valuations for the properties securing claims. The Company estimates claim severity for incurred but not reported delinquencies

based on historical claim amounts.

Variables that affect the determination of loss reserves are the receipt of additional claim information and other internal and

external factors such as the performance of the housing market, changes in claims handling procedures, significant claim

reporting lags, and uncertainties regarding the condition of properties at the time of initial loss reserve quantification.






Sensitivity:

Sensitivity analyses are conducted to quantify the exposure to changes in key loss assumptions. The change in any key

assumption will impact the Company's performance and financial position for a period. The following sensitivity analyses are

performed for reasonable possible movements in key loss assumptions with all other assumptions held constant, showing the

impact on income before income taxes and shareholders' equity. The correlation of assumptions will have a significant effect in

determining ultimate claims liabilities, but to demonstrate the impact due to changes in assumptions, assumptions are changed

on an individual basis.

2015 Change in Impact on income Impact on

Sensitivity factor assumptions before income taxes shareholders' equity

Claim frequency +10% $ (23,646 ) $ (17,368 )

-10% 23,646 17,368

Claim severity +10% (23,646 ) (17,368 )

-10% 23,646 17,368

(c) Subrogation recoverable:

The following table presents movement in subrogation recoverable during the year:

2015 2014

Subrogation rights related to real estate, beginning of year $ 46,195

$ 55,968

Subrogation rights related to real estate acquired as a result of settling claims at fair value 195,703

211,140

Change in market value of real estate on hand (4,718) (10,168)

Subrogation rights related to real estate disposed of during the year (193,957) (210,745)

Subrogation rights related to real estate, end of year 43,223 46,195

Borrower recoveries, beginning of year 20,781

19,486

Net estimated borrower recoveries recognized 2,865

8,036

Borrower recoveries received (5,625) (6,741)

Borrower recoveries, end of year 18,021

20,781

Subrogation recoverable, end of year $ 61,244

$ 66,976





(c) Subrogation recoverable (continued):

The Company applies an expected recovery rate based on historical experience of successful recoveries from borrowers to past

claims paid and current loss reserves to establish a recovery accrual. The Company reviews the expected recovery rate to ensure

it reflects the most current historical experience of successful recoveries.

(d) Deferred policy acquisition costs:

The following table presents movement in deferred policy acquisition costs and the impact on total expenses:

2015 2014

Deferred policy acquisition costs, beginning of year $ 172,289

$ 158,427

Policy acquisition costs deferred during the year 78,901

66,912

Deferred policy acquisition costs expensed during the year (58,120) (53,050)

Net change in deferred policy acquisition costs during the year 20,781

13,862

Deferred policy acquisition costs, end of year $ 193,070

$ 172,289

(e) Reinsurance:

Effective December 1, 2013, the Company, through its indirect subsidiary MICICC, entered into a retrocession agreement (“the

Agreement”) with a third party reinsurance company, under which the Company assumed reinsurance risk for approximately 33%

of the retroceded liabilities on claims paid by Genworth Financial Mortgage Insurance Pty Limited, an Australian company

(“Genworth Australia”) in excess of 700,000 Australian dollars within any one year up to a maximum exposure to the Company of

30,000 Australian dollars less claims paid by the Company in prior years. Under the Agreement, the Company received premiums

equal to 7% of the maximum exposure of 30,000 Australian dollars in the first year of coverage and 9% of the maximum

exposure in the second and third years of coverage.

The term of the Agreement was 3 years. Genworth Australia had the right to terminate the Agreement after the first year of

coverage. The Company was required to collateralize its reinsurance obligations by posting collateral equal to the maximum

exposure of 30,000 Australian dollars.

Effective December 1, 2014, the Agreement was terminated and replaced with a new agreement that had the same terms as the

terminated agreement except that premiums under the new agreement were equal to 6.75% of the maximum exposure of

30,000 Australian dollars in the first year of coverage and 8.75% of the maximum exposure in the second and third years of

coverage.

Effective November 30, 2015, the Company terminated the Agreement with its third party reinsurance company.

During the year ended December 31, 2015, the Company recognized $1,802 of premiums and incurred no losses under the

reinsurance agreement (2014 - $2,086 of premiums recognized and no losses incurred). As at December 31, 2015, the Company

has no collateral posted (2014 - 30,000 Australian dollars, equivalent to $28,446).




7. Financial risk management:

During the year ended December 31, 2014, the Insurance Subsidiary developed and implemented an Own Risk and Solvency

Assessment framework ("ORSA") in accordance with OSFI Guideline E-19: Own Risk and Solvency Assessment. The prime

purpose of ORSA is for an insurer to identify material risks, and to assess the adequacy of its current and likely future capital

needs and solvency position relative to these risks. The implementation of ORSA by the Insurance Subsidiary did not result in a

significant change to the Company's practices of monitoring, evaluating and managing risks.

The Company's risk management framework facilitates the identification and assessment of risks, and the ongoing monitoring

and management of these risks. The objective of the framework and related internal control procedures is to ensure risks are

within the Company's defined risk appetite and tolerance and to achieve profitable underwriting results. There have been no

significant changes to the Company's insurance risk management policies at December 31, 2015 compared to December 31,

2014.

(a) Insurance risk:

The Company is exposed to insurance risk from underwriting of mortgage insurance contracts. Mortgage insurance contracts

transfer risk to the Company by indemnifying lending institutions against credit losses arising from borrower mortgage default.

Under a mortgage insurance policy, a lending institution is insured against risk of loss for the entire unpaid principal balance of a

loan plus interest, customary mortgage enforcement and selling costs, and expenses related to the sale of the underlying

property. Insurance risk impacts the amount, timing and certainty of cash flows arising from insurance contracts.

The Company has identified pricing risk, underwriting risk, claims management risk, loss reserving risk, insurance portfolio

concentration risk and reinsurance risk as its most significant sources of insurance risk. Each of these risks is described

separately below.

(i) Pricing risk:

Pricing risk arises when actual claims experience differs from the assumptions included in pricing calculations. The Company's

premium rates vary with the perceived risk of a claim on an insured loan, which takes into account the Company's long-term

historical loss experience on loans with similar loan-to-value ratios, terms and types of mortgages, borrower credit histories and

capital required to support the product.




7. Financial risk management (continued):

(a) Insurance risk (continued):

(i) Pricing risk (continued):

Before the Company introduces a new product, it establishes specific performance targets, including delinquency rates and loss

ratios, which the Company monitors frequently to identify any deviations from expected performance so that it can take corrective

action when necessary. These performance targets are adjusted periodically to ensure they reflect the current environment.

(ii) Underwriting risk:

Underwriting risk is the risk that the Company's underwriting function will underwrite mortgage insurance under terms that do not

comply with the Company's pre-established risk guidelines, resulting in inappropriate risk acceptance by the business.

The underwriting results of the mortgage insurance business can fluctuate significantly due to the cyclicality of the Canadian

mortgage market. The mortgage market is affected primarily by housing supply and demand, interest rates, and general

economic factors including unemployment rates.

The Company's risk management function establishes risk guidelines based on the Company's underwriting goals. The

underwriting process enables assessment of high loan-to-value applications on a loan-by-loan basis, taking into account a broad

range of factors and ensuring compliance with the risk guidelines. The risk guidelines are reviewed and updated regularly to

manage the Company's exposures and to address emerging trends in the housing market and economic environment. Authority

levels for underwriting decisions are also assigned and monitored by the risk management function. Underwriters are given

authority to approve mortgage insurance applications based on their experience and levels of proficiency. Underwriter

performance is reviewed continuously to facilitate continuous improvement or remedial action where necessary.

(iii) Claims management risk:

The Company enforces a policy of actively managing and promptly settling claims in order to reduce exposure to unpredictable

future developments that can adversely impact losses. The Company has two primary loss mitigation programs. The Homeowner

Assistance Program is designed to help homeowners who are experiencing temporary financial difficulties that may prevent them

from making timely payments on their mortgages.






(iii) Claims management risk (continued):

Initiatives currently employed under the Homeowner Assistance Program include capitalizing arrears, deferring payments for a

specified period, arranging a partial payment plan, and increasing a mortgage amortization period. The Asset Management

Program is designed to accelerate the conveyance of the rights to real estate properties to the Company in select circumstances.

This strategy allows for better control of the property marketing process, reduction of carrying costs and potential of realization of

a higher property sales price.

In addition to its current loss mitigation programs in place, under its agreement with lending institutions, the Company has the

right to recover losses from borrowers once a claim has been paid. The Company actively pursues such recoveries.

(iv) Loss reserving risk:

Loss reserving risk is the risk that loss reserves differ significantly from the ultimate amount paid to settle claims, principally due

to additional information received and external factors that influence claim frequency and severity (including performance of the

Canadian housing market).

The Company reviews its case reserves on an ongoing basis and updates the case reserves as appropriate. Management has

established procedures to evaluate the appropriateness of loss reserves, which include a review of the loss reserves by the

Company's appointed actuary.

(v) Insurance portfolio concentration risk:

A national or regional economic downturn may increase the likelihood that borrowers will not have sufficient income to pay their

mortgages and can also adversely affect home values, which increases the severity of the Company's losses. Portfolio

concentration risk is the risk that losses increase disproportionately where portfolio diversification is inadequate.

The exposure to insurance portfolio concentration risk is mitigated by a portfolio that is diversified across geographic regions. The

Company monitors the conditions of the housing market and economy in each region of Canada against pre-determined risk

tolerances and utilizes this data to customize underwriting guidelines and loss mitigation initiatives by region.






(v) Insurance port folio concentration risk:

Additional scrutiny is given to geographic regions where property values are particularly sensitive to an economic downturn.

The following table presents the Company's concentration of insurance risk by region based on premiums written.

Premiums written 2015 2014

Ontario $ 329,904 41 % $ 246,560 39 %

Alberta 176,213 22 % 165,908 26 %

British Columbia 108,061 13 % 75,428 12 %

Quebec 92,995 12 % 70,742 11 %

Other 99,646 12 % 81,123 12 %

$ 806,819 100 % $ 639,761 100 %

The Company is exposed to changes in housing market performance and trends by geographic region and the concentration of

geographic risk may change over time.

(vi) Reinsurance risk:

Effective November 30, 2015, the Company terminated its reinsurance agreement as described in note 6(e). As at December 31,

2015, the Company has no reinsurance risk (2014 - maximum liability exposure from reinsurance agreement of 30,000 Australian

dollars or $28,446).

(b) Credit risk:

Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and causes financial loss to another

party. The Company is exposed to credit risk principally through its invested assets.





(b) Credit risk (continued):

The total credit risk exposure at December 31, 2015 is $5,615,984 (2014 - $5,208,116) and comprises $78,178 (2014 - $84,933) of

short-term investments, $28,130 (2014 - $30,099) of accrued investment income and other receivables, $5,200,715 (2014 -

$4,997,359) of bonds and debentures, $247,717 (2014-$ nil) of preferred shares and $61,244 (2014 - $66,976) of subrogation

recoverable. At December 31, 2015, the Company did not have any credit risk exposure to derivative financial instrument assets

(2014 - $303) or collateral receivable under the reinsurance agreement (2014 - $28,446).

The Company's investment management strategy is to invest primarily in financial instruments of Canadian government agencies

and other high-credit-quality issuers and to limit the amount of credit exposure with respect to any one issuer, business sector, or

credit rating category, as specified in its investment policy. Credit quality of financial instrument issuers is assessed based on

ratings supplied by rating agencies DBRS, Standard and Poor's, or Moody's.

The breakdown of the Company's bonds and debentures, preferred shares and short-term investments by credit rating is

presented below.

2015 2014

Carrying value Carrying value Credit rating amount % amount %

Bonds and debentures:

AAA $ 2,159,848 40.9 $ 1,946,510 38.3

AA 1,024,168 19.4 1,098,982 21.6

A 1,703,236 32.3 1,690,528 33.3

BBB 386,749 7.3 346,272 6.8

BB 4,892 0.1 — —

5,278,893

100.0 5,082,292

100.0

Preferred Shares

P2 227,369 91.8 — —

P3 20,348 8.2 — —

247,717 100.0 — —

$ 5,526,610

$ 5,082,292






As at December 31, 2015, 92.6% of the Company's bonds and debentures were rated 'A' or better, compared to 93.2% at

December 31, 2014. As at December 31, 2015, 91.8% of the Company's preferred shares were rated 'P2'. As at December 31,

2014 the Company did not hold any preferred shares.

The Company did not hold any impaired financial assets at December 31, 2015 and 2014.

Concentration of credit risk:

Concentration of credit risk exists where a number of borrowers or counterparties are engaged in similar activities, are located in

the same geographic area or have comparable economic characteristics. Their ability to meet contractual obligations may be

similarly affected by changing economic, political or other conditions. The Company's investments could be sensitive to changing

conditions in specific geographic regions or specific industries.

The following table presents the Company's concentration of credit risk within its bond and debenture, short-term investment and

preferred share portfolios by geographic region and by industry.

2015 2014

By country of issuance:

Canada $ 5,041,102 91.2% $ 4,735,080 93.2%

Other 485,508 8.8% 347,212 6.8%

$ 5,526,610 100.0% $ 5,082,292 100.0%

By industry:

Government $ 3,047,539 55.2% $ 2,752,370 54.1%

Bank, insurance, and other financial institutions 1,113,009 20.1% 1,142,371

22.5%

Energy 368,537 6.7% 252,453 5.0%

Infrastructure 222,360 4.0% 240,940 4.7%

All other sectors 775,165 14.0% 694,158 13.7%

$ 5,526,610 100.0% $ 5,082,292 100.0%






The Company has invested 20.1% (2014 - 22.5%) of its invested assets in the financial sector. This risk concentration is closely

monitored by the Company and adjusted through periodic portfolio rebalancing as deemed necessary.

Derivative-related credit risk:

Credit risk from derivative transactions reflects the potential for the Company's counterparty to its derivative transactions to

default on its contractual obligations when one or more transactions have a positive market value to the Company. Therefore,

derivative-related credit risk is represented by the positive fair value of the instrument and is normally a small fraction of the

contract's notional amount.

To mitigate credit risk related to derivative counterparties, the Company has adopted a policy whereby, upon signing the

derivative contract, the counterparty is required to have a minimum credit rating of A-.

Netting is a technique that can reduce credit exposure from derivatives and is generally facilitated through the use of netting

clauses in master derivative agreements. The netting clauses in a master derivative agreement provide for a single net

settlement of all financial instruments covered by the agreement in the event of default. However, credit risk is reduced only to

the extent that the Company's financial obligations toward the counterparty to such an agreement can be set off against

obligations such counterparty has toward the Company. The Company uses netting clauses in master derivative agreements to

reduce derivative-related credit exposure.

The Company also uses collateral to manage derivative-related counterparty credit risk. Mark-to-market provisions in the

Company's agreements with counterparties provide the Company with the right to request that the counterparty collateralize the

current market value of its derivative positions when the value passes a specified exposure threshold. As at December 31, 2015

the Company's net derivative obligations were $83,861 (2014 - $22,995) and the Company has pledged a net amount of $85,296

(2014 - $22,418) of Canadian federal government securities as collateral under the master derivative agreements. The Company

had no derivative-related credit risk at December 31, 2015 as all of its derivative financial instruments were in a liability position.

The Company had minimal derivative-related credit risk at December 31, 2014 as the majority of its derivative financial

instruments were in a liability position.





(c) Liquidity risk/maturity analysis:

Liquidity risk is the risk of having insufficient cash resources to meet financial commitments and policy obligations as they fall due

without raising funds at unfavourable rates or selling assets on a forced basis.

Liquidity risk arises from the Company's general business activities and in the course of managing its assets, liabilities and

externally imposed capital requirements (note 8). The liquidity requirements of the Company's business have been met primarily

by funds generated from operations including investment income, investment asset maturities and financing activities. Cash

provided from these sources is used primarily for loss and loss adjustment expense payments, operating expenses, payment of

dividends and funding of share repurchase transactions. To ensure liquidity requirements are met, the Company holds a portion

of its invested assets in liquid securities. At December 31, 2015, the Company has cash and cash equivalents of $390,796 (2014 -

$190,375) and short-term investments of $78,178 (2014 - $84,933).

The table presented below summarizes the carrying value by the earliest contractual maturity of the Company's bonds and

debentures and short-term investments.

Within 1 1 - 3 3 - 5 5 - 10 Over 10 year years years years years Total

2015 $ 587,560 $ 1,181,669 $ 1,517,124 $ 1,503,156 $ 489,384 $ 5,278,893

2014 $ 546,316 $ 1,208,632 $ 1,269,674 $ 1,418,274 $ 639,396 $ 5,082,292





(c) Liquidity risk/maturity analysis (continued):

The table below shows the expected payout pattern of the Company's financial liabilities:

Within 1 1 - 3 3 - 5 5 - 10 Over 10

year years years years years Total

2015:

Non-derivative financial liabilities:

Accounts payable and accrued liabilities $ 65,750 $ — $ — $ — $ — $ 65,750

Loss reserves (at Actuarial Present Value) 56,234 75,343 — — — 131,577

Long-term debt — — 275,000 160,000 — 435,000

Derivative financial liabilities:

Derivative financial instruments 33,707 6,900 6,659 36,595 — 83,861

2014: Non-derivative financial liabilities:

Accounts payable and accrued liabilities $ 41,557 $ — $ — $ — $ — $ 41,557

Loss reserves (at Actuarial Present Value) 58,413 57,080 — — — 115,493

Long-term debt — — — 435,000 — 435,000

Derivative financial liabilities: Derivative financial instruments — 8,678 1,192 13,349 — 23,298





(d) Market risk:

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, equity market

fluctuations, foreign currency exchange rates and other relevant market rate or price changes. Market risk is directly influenced

by the volatility and liquidity in the markets in which the related underlying assets are traded. The market risks to which the

Company is exposed are interest rate risk, equity price risk and currency risk.

(i) Interest rate risk:

Fluctuations in interest rates have a direct impact on the market valuation of the Company's interest-sensitive assets. Short-term

interest rate fluctuations will generally create unrealized gains or losses. Generally, the Company's investment income will be

reduced during sustained periods of lower interest rates as higher-yielding investments are called, mature or are sold and the

proceeds are reinvested at lower rates, and this will likely result in unrealized gains in the value of investments the Company

continues to hold, as well as realized gains to the extent that the relevant investments are sold. During periods of rising interest

rates, the market value of the Company's existing interest-sensitive assets will generally decrease and gains on investments will

likely be reduced or become losses.

As at December 31, 2015, management estimates that an immediate hypothetical 100 basis point, or 1%, increase in interest

rates would decrease the market value of the AFS bonds and debentures, short- term investments and preferred shares by

approximately $203,720, representing 3.69% of the $5,526,610 fair value of these investments, and decrease the value of loss

reserves by $878. Conversely, a 100 basis point, or 1%, decrease in interest rates would increase the market value of the AFS

bonds and debentures, short-term investments and preferred shares by approximately $212,843 representing 3.85% of the fair

value, and increase the value of loss reserves by approximately $894.





(d) Market risk (continued):

(i) Interest rate risk (continued):

As at December 31, 2014,management estimates that an immediate hypothetical 100 basis point, or 1%, increase in interest

rates would decrease the market value of the AFS bonds and debentures and short- term investments by approximately

$178,000, representing 3.50% of the $5,082,292 fair value of these investments, and decrease the value of loss reserves by

$896. Conversely, a 100 basis point, or 1%, decrease in interest rates would increase the market value of the AFS bonds and

debentures and short-term investments by approximately $192,000 representing 3.78% of the fair value, and increase the value

of loss reserves by approximately $913.

Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions and should

not be relied on as indicative of future results. The analysis in this section is based on the following assumptions: (a) the existing

level and composition of interest-sensitive assets will be maintained; (b) shifts in the yield curve are parallel; and (c) credit and

liquidity risks have not been considered.

(ii) Equity price risk:

Equity price risk is the risk that the fair values of equity investments will decrease as a result of changes in the levels of equity

indices and the values of individual stocks. Equity price risk exposure arises from the Company's investment in common shares.

As at December 31, 2015, the Company did not hold any common shares.

As at December 31, 2014, the Company had a total investment in common shares of $170,456. Management estimates that a

10% increase in the equity price index would increase the market value of the common shares by $12,102 and that a 10%

decrease in the equity price index would decrease the market value of the common shares by the same amount.

The Company has policies to limit and monitor exposures to individual common share issuers and its aggregate exposure to

common shares.





(d) Market risk (continued):

(iii) Currency risk:

Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in

foreign exchange rates. The Company is exposed to currency risk arising from investments denominated in U.S. dollars. During

the year ended December 31, 2014, the Company was also exposed to currency risk arising from collateral pledged under its

reinsurance agreement denominated in Australian dollars.

The Company uses foreign currency forward contracts and cross currency interest rate swaps to mitigate currency risk.

The following table presents the foreign-denominated financial assets and the derivative financial instruments used to reduce

currency risk.

2015 2014

Collateral receivable under reinsurance agreement denominated in Australian dollars $ —

$ 28,446

Bonds and debentures denominated in U.S. dollars (1) 485,508 347,212

Total financial assets exposed to currency risk 485,508 375,658

Less: foreign currency forward contract notional amount 288,856 254,607

cross currency interest rate swap notional amount 224,665 120,558

Total derivative financial instrument notional amount 513,521 375,165

Net currency exposure from financial instruments $ (28,013) $ 493

(1) Bonds and debentures denominated in U.S. dollars consists of $307,941 of emerging market debt (2014-$229,870) and $177,567 of collateralized loan obligations ("CLOs") (2014-$117,342).




8. Capital management and regulatory requirements:

Capital comprises the Company’s shareholders’ equity. The Company’s objectives when managing capital are to maintain financial

strength and a strong financial strength credit rating, to support its claim-paying ability and to maximize returns to shareholders

over the long term.

The Insurance Subsidiary is a regulated insurance company governed by PRMHIA and the provisions of the Insurance Companies

Act (“the Act”), which is administered by OSFI. As such, the Insurance Subsidiary is subject to certain requirements and

restrictions contained in PRMHIA and the Act. The Act limits dividends to shareholders under certain circumstances.

Under PRMHIA and the Act, the Insurance Subsidiary is required to meet a minimum capital test (“MCT”) to support its

outstanding mortgage insurance in force. The MCT ratio is calculated based on methodology prescribed by OSFI. The statutory

minimum is 100% and the Department of Finance has established an MCT ratio of 175% for the Insurance Subsidiary under

PRMHIA in order for the Insurance Subsidiary to be able to write new business (2014 - 175%). In addition, the Company has

established an internal capital ratio target for the Insurance Subsidiary of 185% (2014 - 185%).

In June 2013, OSFI communicated that it has commenced an internal process aimed at developing a new capital framework for

mortgage insurers expected to be effective in 2017. The Company regularly reviews its capital levels and, after reviewing stress

testing results and consulting with OSFI, the Company established an operating MCT holding target of 220%, pending the

development of the new capital framework for mortgage insurers. While the Company’s internal capital target of 185% is

calibrated to cover the various risks that the business would face in a severe recession, the holding target of 220% is designed to

provide a capital buffer to allow management time to take necessary actions should capital levels be pressured by deteriorating

macroeconomic conditions.

In September 2014, OSFI published an interim MCT guideline for mortgage insurers effective January 1, 2015. This guideline was

developed by adjusting the 2015 MCT guideline applicable to Property and Casualty insurers to reflect the specific characteristics

of the mortgage insurance business until the new capital framework for mortgage insurers is developed. The implementation of

the interim MCT guideline in 2015 did not have a significant impact to the Company's MCT.

As at December 31, 2015, the Insurance Subsidiary had an MCT ratio of 233% (2014 - 225%) and has complied with regulatory

and internal capital requirements as well as its MCT holding target.

In addition to requirements to maintain specified levels of capital, to measure the degree to which the Insurance Subsidiary is able

to meet regulatory requirements, the Company’s appointed actuary must present an annual Dynamic Capital Adequacy Test to

the Board of Directors and management on the Insurance Subsidiary’s current and future solvency under various projected

scenarios.

The Company’s Board of Directors has adopted a capital management policy for the Company and the Insurance Subsidiary. The

policy identifies sources of capital, establishes a capital adequacy target and capital holding target for the Insurance Subsidiary and

sets a financial leverage target and dividend policy for the Company. As part of its ongoing management of capital, the Company

prepares capital forecasts and regularly compares actual performance with forecasted results.




9. Investments:

The investments presented in the table below are carried at fair value:

2015 2014

Fair value Amortized cost/cost

Unrealized gain (loss)

% total fair value Fair value

Amortized cost/cost

Unrealized gain (loss)

% total fair value

Cash and cash equivalents:

Canadian federal government treasury bills $ 274,166

$ 274,166 $ — 4.6

$ 135,628 $ 135,628 2.5

Cash 116,630 116,630 — 2.0 54,747 54,747 1.0

390,796 390,796 — 6.6 190,375 190,375 — 3.5

AFS investments:

Short-term investments:

Canadian federal government treasury bills(1) 78,178

78,178 — 1.3

84,933 84,933 —

1.6

78,178 78,178 — 1.3 84,933 84,933 — 1.6

Government bonds and debentures:

Canadian federal government(1) 1,963,176 1,884,347 78,829 33.2 1,769,540 1,696,877 72,663 32.5

Canadian provincial and municipal government 1,006,185

932,785 73,400 17.0

897,897 829,461 68,436

16.5

2,969,361 2,817,132 152,229 50.2 2,667,437 2,526,338 141,099 49.0

Corporate bonds and debentures:

Financial 967,228 933,357 33,871 16.3 1,142,371 1,096,582 45,789 21.0

Energy 315,592 293,913 21,679 5.3 252,453 234,335 18,118 4.6

Infrastructure 222,360 208,774 13,586 3.8 240,940 226,616 14,324 4.5

All other sectors 548,607 493,571 55,036 9.3 568,746 532,185 36,561 10.4

2,053,787 1,929,615 124,172 34.7 2,204,510 2,089,718 114,792 40.5

Asset backed bonds (2) 177,567 145,539 32,028 3.0 125,412 119,930 5,482 2.3

Total AFS bonds and debentures 5,200,715 4,892,286 308,429 87.9 4,997,359 4,735,986 261,373 91.8

Preferred Shares:

Financial 145,781 164,565 (18,784) 2.5 — — — —

Energy 52,945 62,036 (9,091) 0.9 — — — —

All other sectors 48,991 53,949 (4,958) 0.8 — — — —

247,717 280,550 (32,833) 4.2 — — — —

Common shares:

Energy — — — — 28,756 26,924 1,832 0.5

Financial — — — — 45,074 37,088 7,986 0.8

Communications — — — — 16,562 14,823 1,739 0.3

All other sectors — — — — 80,064 63,821 16,243 1.5

— — — — 170,456 142,656 27,800 3.1

Total investments $ 5,917,406 $ 5,641,810 275,596 (3) 100.0

$ 5,443,123 $ 5,153,950 289,173 (3) 100.0

(1) As at December 31, 2015, Canadian federal government bonds and treasury bills includes $85,296 in collateral posted for the benefit of the Company's counterparties to its derivative financial instrument contracts, as described in the derivative financial instruments section of note 9 (December 31, 2014 - $22,418).

(2) As at December 31, 2015, asset backed bonds is comprised entirely of collateralized loan obligations (December 31, 2014 - $117,342).

(3) Unrealized gains include unrealized foreign exchange gains of $97,019 as at December 31, 2015 (December 31, 2014 - $30,044).




9. Investments (continued):

The fair value of investments, excluding preferred shares, common shares and cash and cash equivalents, are shown by

contractual maturity of the investment.

2015 2014

Terms to maturity:

Federal, provincial and municipal bonds and debentures and short-term

investments:

1 year or less $ 383,164 $ 288,499

1-3 years 562,108 675,912

3-5 years 1,089,309 768,565

5-10 years 822,535 777,605

Over 10 years 190,423 241,789

3,047,539 2,752,370

Corporate bonds and debentures and asset backed bonds:

1 year or less 204,396 257,817

1-3 years 619,561 532,720

3-5 years 427,815 501,109

5-10 years 680,621 640,669

Over 10 years 298,961 397,607

2,231,354 2,329,922

$ 5,278,893 $ 5,082,292

Investments denominated in foreign currencies:

Corporate bonds and debentures and asset backed bonds include $307,941 (2014 - $229,870) of emerging market bonds and

$177,567 of collateralized loan obligations ("CLOs") (2014 -$117,342) denominated in U.S. dollars. The CLOs are structured credit

securities, collateralized by U.S. bank loans with an average AA credit rating, that pay interest based on floating interest rates

indexed to the London Interbank Offered Rate.





Investments denominated in foreign currencies (continued):

The emerging market bonds and CLOs are classified as AFS and changes in the fair value of the investments are recorded in OCI.

Re-measurement adjustments arising on translation of the investments from U.S. dollars into Canadian dollars are recognized in

net investment gains.

Derivative financial instruments:

Derivative financial instruments are used by the Company for hedging purposes and for the purpose of modifying the risk profile

of the Company's investment portfolio, subject to exposure limits specified within the Company's investment policy guidelines,

which have been approved by the Board of Directors.

The Company uses derivative financial instruments in the form of foreign currency forwards and cross currency interest rate

swaps to mitigate foreign currency risk associated with bonds denominated in U.S. dollars (2014 - bonds denominated in U.S.

dollars and reinsurance collateral denominated in Australian dollars). Foreign currency forwards and cross currency interest rate

swaps are contractual obligations to exchange one currency for another at a predetermined future date.

The Company uses equity total return swaps to hedge a portion of its economic exposure from the changes in fair market value of

the Company's common shares in relation to risk associated with share-based compensation expenses. Additional disclosure of

the Company's equity total return swaps is included in note 14.

The following table shows the fair value and notional amounts of the derivative financial instruments by terms of maturity, in

Canadian dollars:

Notional amount Net 1 year 1 - 3 3 - 5 Over 5 2015 Fair value or less years years years Total

Foreign currency forwards (1) $ (44,886) $ 14,351 $ 26,412 $ 35,558 $ 212,535 $ 288,856

Cross currency interest rate swaps (1) (37,461) 143,590 27,680 19,376 34,019 224,665

Equity total return swaps (1) (1,514) 19,558 — — — 19,558

Total $ (83,861) $177,499 $ 54,092 $ 54,934 $ 246,554 $ 533,079





Notional amount

Net 1 year 1 - 3 3 - 5 Over 5 2014 Fair value or less years years years Total

Foreign currency forwards (1) $ (14,902) $ 29,322 $ 5,752 $ 16,500 $ 203,033 $ 254,607

Cross currency interest rate swaps (1) (8,249) — 120,558 — — 120,558

Equity total return swaps (1) 156 — — — — —

Total $ (22,995) $ 29,322 $ 126,310 $ 16,500 $ 203,033 $ 375,165

(1) As at December 31, 2015, All foreign currency forwards, cross currency interest rate swaps and equity total return swaps were in a liability position.

(1) December 31, 2014 - Foreign currency forwards includes $15,049 derivative financial instrument liabilities and $147 derivative financial instrument assets. All cross currency interest rate swaps were in a liability position. All equity total return swaps were in an asset position.

The Company enters into collateral arrangements with its derivative counterparties that require the posting of collateral upon

certain net exposure thresholds being met. As at December 31, 2015, the Company had posted collateral of $85,296 in the form

of Canadian federal government bonds and treasury bills for the benefit of its counterparties to the foreign currency forwards,

cross currency interest rate swaps and equity total return swaps (2014 - $22,418).

Securities lending:

The Company participates in a securities lending program through an intermediary that is a financial institution for the purpose of

generating fee income. Non-cash collateral, in the form of U.S. or Canadian government securities, which is equal to at least

105% of the fair value of the loaned securities, is retained by the Company until the underlying securities have been returned to

the Company.

The fair value of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the fair value

of the underlying securities fluctuates. While in the possession of counterparties, the loaned securities may be resold or re-

pledged by such counterparties. The intermediary indemnifies the Company against any shortfalls in collateral.

In addition to earning fee income under the securities lending program, the Company continues to earn all interest, dividends and

other income generated by the loaned securities while the securities are in the possession of counterparties.





Securities lending (continued):

These transactions are conducted under terms that are usual and customary to security lending activities, as well as requirements

determined by exchanges where a financial institution acts as an intermediary.

As at December 31, 2015, the Company had loaned the following investments under its securities lending program:

2015 2014

Cash equivalents $ 28,648 $ —

Short-term investments 3,823 —

Bonds and debentures 435,357 367,190

Preferred shares 22,055 —

Common shares — 63,753

$ 489,883 $ 430,943

As at December 31, 2015, the Company has accepted eligible securities as collateral with a fair value of $495,671 (2014 - $455,029).




10. Income taxes:

The provision for income taxes comprises the following:

2015 2014

Current tax:

Current income taxes $ 137,108 $ 137,605

Current income tax adjustments in respect of prior years (4,513 ) (69)

132,595 137,536

Deferred tax:

Origination and reversal of temporary differences 2,448 (3,816)

Impact of change in income tax rates 692 359

3,140 (3,457)

Total income tax expense $ 135,735 $ 134,079

Income taxes recognized in OCI comprise the following:

2015 2014

Income taxes (income tax recovery) related to net gains or losses

on AFS financial assets $ (22,040 ) $ 21,201

Income taxes (income tax recovery) related to re-measurement of

employee benefit plan obligations 743 (1,834 )

Total income taxes (income tax recovery) recognized in OCI $ (21,297 ) $ 19,367




10. Income taxes (continued):

Income taxes reflect an effective tax rate that differs from the statutory tax rate for the following reasons:

2015 2014

Income before income taxes $ 534,037 $ 510,623

Combined basic Canadian federal

and provincial income tax rate 26.55 % 26.30%

Income tax expense based on statutory rate $ 141,787 $ 134,294

Increase (decrease) in income tax resulting from:

Non-taxable income (2,927 ) (343)

Effect of increase in income tax rates 1,362

359

Income tax adjustments in respect of prior years (4,487 ) (231)

Income tax expense $ 135,735 $ 134,079

The difference in the effective income tax rate of 25.42%, implicit in the $135,735 provision for income taxes in 2015 from the

Company's statutory income tax rate of 26.55%, was primarily attributable to income tax adjustments in respect of prior years

and higher non-taxable income partially offset by a higher income tax rate applicable to deferred income.

The difference in the effective income tax rate of 26.26%, implicit in the $134,079 provision for income taxes in 2014 from the

Company's statutory income tax rate of 26.30%, was primarily attributable to non-taxable dividend income and adjustments

relating to prior years, partially offset by non-deductible share-based compensation expenses and a higher income tax rate

applicable to deferred income.




10. Income taxes (continued):

The following table describes the components of the net deferred tax liability on the Company's consolidated statements of

financial position:

2015 2014

Deferred tax assets:

Employee benefits $ 11,579

$ 11,917

Loss reserves 1,763

1,666

Tax losses available for carry forward 10,679

10,079

Financing costs —

916

24,021 24,578

Deferred tax liabilities:

Investments (1,404 ) (1,619)

Policy reserves (59,304 ) (56,002)

Property and equipment and intangible assets (2,062 ) (2,079)

Financing costs (256 ) —

(63,026 ) (59,700)

Net deferred tax liability $ (39,005 ) $ (35,122)

The net change in the composition of the net deferred tax liabilities is as follows:

2015 2014

Balance, beginning of year $ 35,122 $ 40,413

Expense for the year 3,140 (3,457 )

OCI recognized for the year 743 (1,834 )

Balance, end of year $ 39,005 $ 35,122

All deferred tax assets have been recognized as at December 31, 2015 and 2014 as the Company has assessed it is probable that

future taxable profits will be available against which the deferred tax benefits can be utilized.




11. Related party transactions and balances:

(a) Transactions with key management personnel and Company directors:

Key management personnel are those persons having authority and responsibility for planning and directly controlling the activities

of the Company.

Key management personnel's compensation includes base salary and performance-based compensation consisting of short-term

incentive compensation and long-term share-based compensation benefits, retirement benefits and executive allowances. Short-

term incentive compensation is dependent on the Company's performance against metrics that have been approved by the

Company’s Board of Directors and each managers' performance against his or her personal goals and objectives. Long-term

share-based compensation grants may consist of any combination of Options, RSUs, PSUs and EDSUs (note 14). In addition to

the defined contribution retirement benefit plan, the SERP is maintained to provide pension benefits to key management

personnel in excess of the amounts payable under the Company's registered defined contribution plan. The Company has a

compensation recoupement policy pertaining to its incentive compensation plans, providing for the full or partial forfeiture and

recoupement of incentive compensation awarded and outstanding or paid to incentive compensation plan participants, including

key management personnel. This policy will be applied at the discretion of the Board of Directors in circumstances that may

include a material financial restatement, other than a restatement caused by a change in applicable accounting rules or

interpretations, the result of which was that any incentive compensation provided to senior executives or officers would have

been a lower amount had it been calculated based on such restated results, or where a participant has been determined by the

Board of Directors to have engaged in misconduct, regardless of the need for a financial restatement.

The Company has standard policies in place to cover various forms of termination. Key management personnel are subject to the

same terms and conditions as all other employees of the Company for resignation and termination for cause.

Directors must take 50% of their annual retainer in the form of DSUs and may elect to take the remaining portion as cash.

Independent directors are required to own at least three times their annual retainer in common shares or DSUs five years from

the individual's appointment date. If a director has not met the Company's ownership guideline within the prescribed period,

100% of the director's annual retainer will be paid in DSUs until such time as the guidelines are met.




11. Related party transactions and balances (continued):

(a) Transactions with key management personnel and Company directors (continued):

Compensation for the Company's seven key management personnel and eight independent directors (2014 - seven key

management personnel and six independent directors) is comprised of the following:

2015 2014

Short-term employee benefits $ 3,888 $ 4,911

Post-employment benefits 751 700

Share-based compensation 1,075 2,207

Director fees 704 617

Total compensation $ 6,418

$ 8,435

(b) Interest in consolidated subsidiaries:

The following table identifies all of the investees in the Company's reporting structure and the Company's percentage of direct

and indirect ownership of the investees. All of the investees have been incorporated in Canada:

Investee Type of ownership Ownership

interest

Genworth Canada Holdings I Company ("Holdings I") Direct 100%

Genworth Canada Holdings II Company ("Holdings II") Direct 100%

MIC Holdings G Company ("Gco") Direct 100%

Genworth Financial Mortgage Insurance Company

Canada ("the Insurance Subsidiary")

Indirect through Holdings I and

Holdings II 100%

MIC Insurance Company Canada ("MICICC") Indirect through the Insurance

Subsidiary 100%




11. Related party transactions and balances (continued):

(b) Interest in consolidated subsidiaries (continued):

Through its sole ownership interest in these investees, the Company has the ability to make decisions on behalf of the investees

and has control of the investees. As control has been established, the Company is required to consolidate the investees.

The Insurance Subsidiary and MICICC are regulated insurance companies governed by the provisions of the Insurance Company

Act ("the Act"), which is administered by OSFI. The Insurance Subsidiary is also subject to legislation under PRMHIA. As such,

these investees are subject to certain requirements and restrictions contained in PRMHIA and the Act. The Investees are required

under the Act to meet an MCT to support their outstanding mortgage insurance policies in force. In addition, internal capital ratio

targets and capital holding targets have been established for the Insurance Subsidiary by the Board of Directors with which it

must comply (note 8). Accordingly, the payment of dividends and other distributions by the Insurance Subsidiary to the Company

are subject to compliance with MCT internal capital ratio targets, MCT holding targets and other applicable regulatory

requirements.

(c) Other related party transactions:

The Company enters into related party transactions with Genworth Financial Inc. and its subsidiaries. Services rendered by

Genworth Financial Inc. and its subsidiaries consist of information technology, finance, human resources, legal and compliance

and other specified services. The services rendered by the Company and the Insurance Subsidiary relate mainly to financial

reporting and tax compliance support services. These transactions are in the normal course of business and are at terms and

conditions no less favourable than market. Balances owing for service transactions are non-interest bearing and are settled on a

quarterly basis.

The Company incurred net related party charges of $6,458 for the year ended December 31, 2015, recorded in office expenses in

the consolidated statements of income (2014 - $5,247). The balance payable for related party services at December 31, 2015 is

$228 (2014 - $317) and is reported in accounts payable and accrued liabilities in the consolidated statements of financial position.

During the year ended December 31, 2015, the Company repurchased 1,454,196 (2014- 1,873,023) of its own common shares for

cancellation on the open market for an aggregate purchase price of $50,007 (2014 - $75,009). Genworth Financial Inc., through its

subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% (2014 - 57.3%) ownership

interest in the Company. See note 18 for additional disclosure on the share repurchase transactions.

Effective November 30, 2015, the Company, through its indirect subsidiary MICICC, terminated a retrocession agreement that

commenced on December 1, 2013 with a third party reinsurance company. Under the Agreement the Company assumed

reinsurance risk for approximately 33% of the retroceded liabilities on claims paid by Genworth Australia in excess of 700,000

Australian dollars within any one year up to a maximum exposure to the Company of 30,000 Australian dollars less claims paid by

the Company in prior years. Additional information about the reinsurance transaction is disclosed in note 6(e).




12. Commitments:

The Company's commitments comprise of operating leases. The Company leases office space, office equipment, computer

equipment and automobiles. Leases of office space have initial lease terms between five to seven years, with the right to extend

the initial term of the lease for an additional three or five years.

Future minimum lease commitments at December 31, 2015 and 2014 are as follows:

2015 2014

Less than 1 year $ 2,704

$ 2,542

Later than 1 year but less than 5 years 9,914

4,080

$ 12,618 $ 6,622

Lease payments recognized as an expense for the year ended December 31, 2015 were $3,032 (2014 - $3,127)

13. Employee benefits:

Defined contribution pension benefit plan:

The Company's eligible employees participate in a registered defined contribution pension plan. The plan has no vesting period.

Employees are entitled to accumulated pension benefits immediately upon hire. As plan sponsor, the Company is responsible for

contributing a predetermined amount to an employee's retirement savings, based on a percentage of that employee's salary.

The cost of the defined contribution pension plan is recognized as compensation expense as services are provided by employees.

The defined contribution pension plan is subject to regulation under the Pension Benefits Act (Ontario) and the Canadian Income

Tax Act.

Defined benefit plans:

The Company maintains two types of defined benefit plans: a SERP and a defined benefit plan for non-pension post-retirement

benefits.




13. Employee benefits (continued):

The SERP is an unregistered, non-contributory supplemental pension plan that supplements the registered defined contribution

plan. Benefit entitlement under the SERP is based on a final average earnings target. The SERP has no vesting period. Employees

eligible for SERP participation are entitled to accumulated pension benefits immediately upon hire. The non-pension post-

retirement benefit plan provides medical and life insurance coverage to employees after retirement. Certain employees are also

entitled to dental benefits under this plan.

The benefit liabilities for these plans represent the amount of pension and non-pension post-retirement benefits that employees

and retirees have earned as at year end. The Company's actuaries perform valuations of the benefit liabilities for these plans as at

December 31 of each year based on the Company's assumptions, including assumptions on discount rate, rate of compensation

increase, mortality and the trend in the health care cost rate. The discount rate is determined by the Company with reference to

AA credit-rated bonds that have maturity dates approximating the Company's obligation terms at period end and are denominated

in the same currency as the benefit obligations. Other assumptions are determined with reference to long-term expectations.

Plan membership data used in the valuations includes the number of plan members and the average age, service period and

pensionable earnings of plan members. For the SERP, actuarial valuations for the years ended December 31, 2015 and 2014 are

based on plan membership data as at the respective period ends. The weighted average duration of the SERP is 21 years. For

the non-pension post retirement benefits, actuarial valuations for the years ended December 31, 2015 and 2014 are based on

plan membership data as at June 1, 2015 and August 1, 2012, respectively. The weighted average duration of the non-pension

post-retirement benefit plan is 24 years.

The plans are unfunded with no specific assets backing the plan. The Company is the sponsor of these plans. Pension and

benefit payments related to these plans are paid directly by the Company at the time the benefits are due.

The SERP and non-pension post-retirement benefit plans are unregistered and are not subject to specific legislation.





Benefit plan governance:

The Company's Board of Directors has oversight of the pension and post-retirement benefit plans. The Pension Committee,

which is comprised of executive-level employees of the Company, reports to the Board of Directors on all pension-related

matters. Part of the Pension Committee's broader mandate is to identify risks associated with the pension plans and to

recommend appropriate policies and procedures to mitigate and manage these risks to the Board of Directors for approval. Once

approved by the Board of Directors, the policies and procedures are implemented by the Company.

The benefit liabilities in respect of the plans are recorded in the Company's consolidated statements of financial position as

follows:

SERP

Non-pension Total post-retirement benefits benefit liabilities

2015 2014 2015 2014 2015 2014

Accrued net benefit

liabilities under employee benefit plans $21,052 $19,908 $16,189 $16,399 $37,241 $36,307

The maturity profile of the plans is demonstrated in the following table:

SERP Non-pension Total

post-retirement benefits benefit liabilities

2015 2014 2015 2014 2015 2014

Accrued net benefit liabilities of active plan members

$15,635 $14,738 $12,997 $14,278 $28,632 $29,016

Accrued net benefit

liabilities of retirees and deferred vested

benefit recipients $5,417 $5,170 $3,192 $2,121 $8,609 $ 7,291

Accrued net benefit liabilities under employee benefit plans $21,052

$16,189 $16,399 $37,241 $36,307





Pension and non-pension post-retirement benefits are recognized in employee compensation in the consolidated statements of

income and are determined as follows:

SERP

Non-pension post-retirement benefits

Total

benefit liabilities

2015 2014 2015 2014 2015 2014

Defined benefit expense:

Benefits earned by

employees $ 1,029 $ 705 $ 1,435 $ 1,179 $ 2,464 $ 1,884

Interest costs on accrued benefit liability 820

687 678 630 1,498 1,317

Plan settlements 92 — — — 92 —

Defined benefit

expense for the year 1,941 1,392 2,113 1,809 4,054 3,201

Defined contribution

expense for the year 2,635 2,646 — — 2,635 2,646

Total pension and non-pension

post-retirement benefit expense

for the year $ 4,576 $ 4,038 $ 2,113 $ 1,809 $ 6,689 $ 5,847

The actuarial gains recognized in the consolidated statements of comprehensive income relating to the SERP are $513 for the

year ended December 31, 2015 (2014 - actuarial losses of $4,905). The actuarial gains recognized in the consolidated statements

of comprehensive income relating to the non-pension post-retirement benefits are $2,257 (2014 - actuarial losses of $2,008).





Changes in the estimated financial positions of the SERP and non-pension post-retirement benefits are as follows:

SERP Non-pension post-retirement benefits Total benefit liabilities

2015 2014 2015 2014 2015 2014

Accrued net benefit liabilities under employee benefit

plans, beginning of year $ 19,908 $ 13,830 $ 16,399 $ 12,689 $ 36,307 $ 26,519

Benefits earned by employees during the year 1,029 705 1,435 1,179 2,464 1,884

Interest costs on accrued liability incurred during the year 820 687 678 630 1,498 1,317

Plan settlements recognized during the year 92 — — — 92 —

Benefits paid to pensioners during the year (284 ) (219 ) (66 ) (107 ) (350 ) (326)

Actuarial losses (gains) from plan re-measurement (513 ) 4,905 (2,257 ) 2,008 (2,770 ) 6,913

Accrued net benefit liabilities under employee benefit plans $ 21,052 $ 19,908 $ 16,189 $ 16,399 $ 37,241 $ 36,307

The actuarial gains or losses categorized according to experience gains or losses and changes in assumptions are presented in the

following table:

SERP

Non-pension Total

post-retirement benefits benefit liabilities

2015 2014 2015 2014 2015 2014

Actuarial losses (gains):

Experience

losses (gains) $ (41 ) $ 1,210

$ (1,884 ) $ (46 ) $ (1,925 ) $ 1,164

Changes in assumptions:

Financial assumptions (508 ) 3,577

(343 ) 2,639

(851 ) 6,216

Demographic assumptions 36 118

(30 ) (585 ) 6 (467)

Total changes in assumptions (472 ) 3,695 (373 ) 2,054 (845 ) 5,749

$ (513 ) $ 4,905 $ (2,257 ) $ 2,008 $ (2,770 ) $ 6,913





Defined benefit plan assumptions:

The significant weighted average assumptions used to determine benefit liabilities are as follows:

SERP

Non-pension

post-retirement benefits

2015 2014 2015 2014

Discount rate 4.30% 4.15% 4.30 % 4.15 %

Change in rate of

compensation

increase 3.00% 3.00% 3.00 % 3.00 %

Mortality 75% of male rates

and 92% of female rates from the CIA

Private Sector Table with generational

mortality improvements using

CIA CPM-B Scale

75% of male rates and 92% of female rates

from the CPM RPP 2014 Private table with

generational mortality improvements using

Scale CPM-B

CPM2014 Private Sector Table with

generational mortality

improvements scale CPM-B

CPM2014 Private Sector Table with

generational mortality

improvements scale CPM-B

Assumed overall

health care cost trend rate n/a n/a 6.24 % 8.33 %

(1) Grading down to 4.50% per year in and after 2029.





The following sensitivity analyses demonstrate the impact of a reasonable possible change in each significant valuation

assumption as at December 31, 2015 and 2014 on the benefit obligations.

2015 SERP

Non-pension post-retirement

benefits

Increase (decrease) in benefit obligations:

Discount rate:

Impact of 1% increase $ (3,804 ) $ (3,118 )

Impact of 1% decrease 4,973 3,791

Change in rate of compensation increase:

Impact of 1% increase 1,855 n/a

Impact of 1% decrease (1,650 ) n/a

Mortality rate:

Impact of 1 additional year of life expectancy 368 264

Impact of 1 less year of life expectancy (400 ) (250 )

Assumed overall health care cost trend rate:

Impact of 1% increase n/a 706

Impact of 1% decrease n/a (1,041 )





2014 SERP

Non-pension post-retirement

benefits

Increase (decrease) in benefit obligations:

Discount rate:

Impact of 1% increase $ (3,757 ) $ (3,084 )

Impact of 1% decrease 4,956 4,387

Change in rate of compensation increase:

Impact of 1% increase 1,980 n/a

Impact of 1% decrease (1,747 ) n/a

Mortality rate:

Impact of 1 additional year of life expectancy 462 296

Impact of 1 less year of life expectancy (498 ) 282

Assumed overall health care cost trend rate:

Impact of 1% increase n/a 1,183

Impact of 1% decrease n/a (948 )

This sensitivity analysis is hypothetical. Actual experience may differ from expected experience. For the purpose of this analysis, all other assumptions were held constant.





Benefit plan cash flows:

The SERP and non-pension post-retirement benefits plans are unfunded. The Company pays these benefits as they become due.

Cash payments made by the Company during the year in connection with employee benefit plans are as follows:

Pension plans Non-pension

2015 2014 2015 2014

Benefits paid for

defined benefit plans $ 284 $ 219 $ 66 $ 107

Contribution to defined

contribution plan 2,635 2,646 — —

$ 2,919 $ 2,865 $ 66 $ 107

The Company expects to contribute the following amounts to its employee benefit plans during the annual period beginning after

December 31, 2015:

Defined contribution plan $ 2,287

SERP 297

Non-pension post retirement benefit plan 180

Total $ 2,764

Termination benefits:

Termination benefits are required to be recognized at the earlier of when the Company can no longer withdraw the offer of the

termination benefit or the Company recognizes restructuring costs within the scope of IAS 37 - Provisions, contingent liabilities

and contingent assets ("IAS 37").




14. Share-based compensation:

The Company provides long-term incentive plans for the granting of Options, RSUs, PSUs, EDSUs and DSUs.

Options are granted to employees with an exercise price equal to the Company's closing share price at the date of grant. Options

vest over a period of three years (50% on each of the second and third anniversaries of the grant date or equally over three years).

The Options expire 10 years from the date of grant and provide employees with the choice of settlement in either cash or shares

of the Company. The range of exercise prices for the year ended December 31, 2015 is $19.00 to $32.88 (2014 - $19.00 to

$32.88).

RSUs entitle employees to receive an amount equal to the fair value of the Company's shares. RSU grants issued prior to 2014

vest equally over three years. Starting in 2014 RSU grants issued vest at the end of a three-year period.

PSUs entitle employees to receive an amount equal to the fair value of the Company's shares if certain performance conditions

are met. Performance measures associated with PSU grants include return on equity and basic earnings per share. PSU grants

issued vest at the end of a three-year period. The average of the performance measures taken over the three-year performance

period is used to determine the extent to which performance conditions are met.

The Company's Board of Directors, at its sole discretion, may grant EDSUs to the Company's executive-level employees. EDSUs

entitle employees to receive an amount equal to the fair value of the Company's shares. The Board of Directors determines the

vesting and performance conditions, as well as the number of EDSU units to be granted. EDSUs may be redeemed only upon

termination of employment.

DSUs entitle eligible members of the Company's Board of Directors to receive an amount equal to the fair value of the Company's

shares. The number of DSUs granted is based on the fair value of director services provided during the period and is calculated

using the Company's average share price in the five days immediately preceding the period end. DSUs vest immediately on the

date of grant and must be redeemed no later than December 15 of the calendar year, commencing immediately after the

Director's termination date.




14. Share-based compensation (continued):

Employees and directors receive settlement of RSUs, PSUs and DSUs in either cash or shares of the Company at the discretion

of the Company's Board of Directors. EDSUs are settled in cash. The RSUs, PSUs, EDSUs and DSUs may also receive dividend

equivalents at the discretion of the Company's Board of Directors.

The Company has a compensation recoupement policy pertaining to its incentive plans, including its share-based compensation

plans, providing for the full or partial forfeiture and recoupement of incentive compensation awarded and outstanding or paid to

incentive compensation plan participants. This policy will be applied at the discretion of the Board of Directors in circumstances

that may include a material financial restatement, other than a restatement caused by a change in applicable accounting rules or

interpretations, the result of which was that any incentive compensation provided to senior executives or officers would have

been a lower amount had it been calculated based on such restated results or where a participant has been determined by the

Board of Directors to have engaged in misconduct, regardless of the need for a financial restatement.

The Company enters into equity total return swaps to hedge a portion of its economic exposure from the changes in fair market

value of the Company's common shares in relation to risk associated with share-based compensation expense. Equity total

return swaps are contracts by which one counterparty agrees to pay or receive from the other cash amounts based on changes in

the value of a referenced asset or group of assets, including any returns such as interest earned or dividends accrued on these

assets, in exchange for amounts that are based on prevailing market funding rates. Changes in fair value of the equity total return

swaps are recognized in employee compensation expense in the consolidated statements of income.





The Company has reserved 3,000,000 common shares of its issued and authorized shares for issuance under these long-term

incentive plans.

As at December 31, 2015, the Company has 1,797,884 common shares remaining that are available for distribution (2014 -

1,741,938) .

The following table presents information about these share-based compensation plans:

2015

Number of

Options

Weighted average exercise

price

Weighted average fair

value of Options

Number of RSUs

Weighted average

fair value of RSUs

Number of DSUs

Weighted average

fair value of DSUs

Number of PSUs

Weighted average

fair value of PSUs

Number of

EDSUs

Weighted average fair

value of EDSUs

Outstanding as at January 1 1,001,764 $ 23.48 $ 10,289 105,983 $ 3,919

53,717 $ 1,986 96,600 $ 3,572 21,149 $ 782

Granted 53,100 31.90 — 39,200 1,246

10,639 312 28,185 883 8,600 274

Dividend equivalents granted — — — 5,307 162

3,038 79 5,258 152 1,568 50

Exercised (87,960) 20.96 (293) (40,196) (1,289) (14,078) (377 ) (19,630) (619) — —

Forfeited (11,667) 32.38 (34) (14,366) (445) — — (12,778) (386) — —

Changes in fair value — — (7,313) — (1,041) — (582 ) — (1,005) — (273)

Outstanding as at December 31 955,237 24.08 2,649 95,928 2,552

53,316 1,418 97,635 2,597 31,317 833

Exercisable as at December 31 805,833 $ 22.86 $ 2,391 — $ —

53,316 $ 1,418 — $ — — $ —

Weighted average remaining contractual life (years)

5.3 — — 1.8 —

— — 1.6 — 2.6 —





2014 Number of

Options

Weighted average exercise

price

Weighted average

fair value of

Options Number of RSUs

Weighted average

fair value of RSUs

Number of

DSUs

Weighted average

fair value of DSUs

Number of PSUs

Weighted average

fair value of PSUs

Number of

EDSUs

Weighted average

fair value of EDSUs

Outstanding as at January 1 986,908 $ 22.12 $ 9,198 105,314 $ 3,858 44,736 $ 1,639 71,538 $ 2,620 20,153 $738

Granted 114,500 32.88 — 45,000 1,480 6,620 244 37,922 1,228 — —Dividend equivalents granted — — — 4,921 142 2,361 58 4,733 128 996 31

Exercised (93,494) 20.57 (1,099) (49,252) (1,678) — — (17,593) (586) — —

Forfeited (6,150) 23.49 (73) — — — — — — — —Changes in fair value — — 2,263 — 117 — 45 — 182 — 13

Outstanding as at December 31 1,001,764 23.48 10,289 105,983 3,919 53,717 1,986 96,600 3,572 21,149 782

Exercisable as at December 31 775,798 $ 22.13 $ 8,497 — $ — 53,717 $ 1,986 — $ — — $ —

Weighted average remaining contractual life (years)

6.0 — — 1.8 — — — 1.7 — 3.3 —





The fair value of Options is measured using the Black-Scholes valuation model as at the end of each reporting period.

The inputs used in the measurement of fair value of the Options are as follows:

2015 2014

Share price at reporting date $ 26.60 $ 36.98

Weighted average exercise price per share $ 24.08 $ 23.48

Expected volatility 25.53 % 22.41%

Option life (years) 8.0 6.0

Expected dividend yield 6.44 % 3.79%

Risk-free interest rate 0.62 % 1.02%

Expected volatility is estimated based on the Company's average historical volatility and the mean volatility of the general index of

Canadian financial companies. The volatility of Canadian financial companies is used to supplement the volatility calculation given

the Company has limited share price history. The weighted average expected life of the instrument is estimated based on the

Company's expectations about the timing of option exercises. Dividend yield is estimated based on historical dividends and the

Company's long-term expectations. Risk-free rate is determined with reference to Government of Canada bonds.

The aggregate fair value of the Options outstanding is $2,649 as at December 31, 2015 (2014 - $10,289).

The fair value of the RSUs, PSUs, DSUs and EDSUs is measured at the quoted market price of the Company's shares at the end

of each reporting period.

The Company records share-based compensation expense only to the extent that the share-based awards are expected to vest

based on the Company's best estimate of the outcome of service and performance conditions.





The following tables provide information about the expenses and liabilities arising from share-based compensation:

2015 2014

Expenses arising from:

Options $ (6,086 ) $ 2,923

RSUs 360 1,461

PSUs 811 1,462

EDSUs 281 267

DSUs (191 ) 348

$ (4,825 ) $ 6,461

Effect of equity total return swaps $ 4,516 $ (156)

Net share-based compensation expense (recovery) $ (309 ) $ 6,305

2015 2014

Total carrying amount of liabilities for cash-settled arrangements $ 8,496 $ 16,764

Total intrinsic value of liability for vested benefits $ 4,432 $ 13,509




15. Intangible assets:

The Company's intangible assets are summarized as follows:

Cost Computer software

Balance at January 1, 2014 $ 36,265

Acquisitions - externally purchased 3,338

Balance at December 31, 2014 39,603

Acquisitions - externally purchased 3,564

Balance at December 31, 2015 $ 43,167

Amortization and impairment losses Computer software

Balance at January 1, 2014 $ 28,951

Amortization for the year 3,191

Balance at December 31, 2014 32,142

Amortization for the year 1,941

Balance at December 31, 2015 $ 34,083

Amortization of intangible assets is included in office expenses in the consolidated statements of income.

Carrying amounts Computer software

At December 31, 2014 $ 7,461

At December 31, 2015 9,084




16. Transactions with lenders:

Gross premiums written from two major lenders (defined as lenders that individually account for more than 10% of the

Company's gross premiums written) was $189,482, representing 23.4% of the Company's total gross premiums written for the

year ended December 31, 2015 (2014 - gross premiums written from two major lenders that accounted for more than 10% of the

Company's gross premiums written was $166,924 or 26.1%).

17. Goodwill:

On January 17, 1995, the Company acquired certain assets and assumed certain liabilities from the Mortgage Insurance Company

Canada ("MICC") related to MICC's residential mortgage insurance line of business. The excess of the purchase price over the

estimated fair value of the net assets was recorded as goodwill.

Goodwill impairment test:

Goodwill is considered impaired to the extent that its carrying amount exceeds its recoverable amount. The recoverable amount

of the Company's single CGU, which is its mortgage insurance business, was determined based on its value in use. Value in use

was calculated by discounting the future cash flows generated from continuing use of the CGU. The calculation of value in use

incorporated five years of cash flow estimates and was based on the following key assumptions:

The Company's multi-year plan was used as a proxy for five years of future cash flow estimates. The multi-year plan represents

the Company's best estimate of future income and cash flows and is approved by the Company's Board of Directors. The plan

incorporates assumptions regarding premium growth rate, loss development and relevant industry and economic assumptions.

Terminal value incorporated into the value in use calculations was estimated by applying a growth rate of 1.7% (2014 - 1.6%) to

the last year of the multi-year plan cash flow estimate. The growth rates at December 31, 2015 and 2014 reflect the Canadian

five year historical average core inflation rate, which does not exceed the long-term average growth rate for the industry.

A pre-tax discount rate of 13.7% (2014 - 13.8%) was applied in determining the recoverable amount of the unit. The discount

rates as at December 31, 2015 and 2014 were based on the Company's weighted average cost of capital, adjusted for liquidity

and a risk premium.

Based on the value in use calculation, the recoverable amount of the unit was determined to be higher than its carrying amount.

No goodwill impairment charge has been recognized in the year ended December 31, 2015 (2014 - nil).




18. Share capital:

The share capital of the Company comprises the following:

2015 2014

Authorized:

Unlimited common shares with nominal or no par value(1)

1 special share(2)

Issued: 91,795,125 common shares (2014 - 93,147,778)

$ 1,366,374 $ 1,384,558

1 special share — —

Share capital $ 1,366,374 $ 1,384,558

(1) Holders of common shares will, except where otherwise provided by law and subject to the rights of the holder of the special

share, be entitled to elect a portion of the Board of Directors, vote at all meetings of shareholders of the Company and be entitled

to one vote per common share. Holders of common shares are entitled to receive dividends as and when declared by the Board

of Directors and, upon voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of common

shares are entitled to receive the remaining property and assets of the Company available for distribution, after payment of

liabilities. All issued shares are fully paid.

(2)Only one special share may be authorized for issuance. The special share is held by the Company's majority shareholder,

Genworth Financial Inc. The attributes of the special share provide that the holder of the special share will be entitled to nominate

and elect a certain number of directors to the Board of Directors, as determined by the number of common shares that the holder

of the special share and its affiliates beneficially own from time to time. Accordingly, for so long as Genworth Financial Inc.

beneficially owns a specified percentage of commons shares, the holder of the special share will be entitled to nominate and

elect a specified number of the Company's directors, as set out in the table below.

Common share ownership Number of directors

Greater than or equal to 50% 5/9

Less than 50% but not less than 40% 4/9




Less than 10% none

Under the shareholder agreement, the selling shareholder will agree that the special share may not be transferred except to and

among affiliates of Genworth Financial Inc. Subject to applicable law, the special share will be automatically redeemed for $1.00

immediately upon (a) any transfer to a non-affiliate of Genworth Financial Inc., (b) the time that any affiliate of Genworth Financial

Inc. who, at the relevant time, holds the special share is no longer an affiliate of Genworth Financial Inc., (c) the time that

Genworth Financial Inc. first ceases to beneficially own at least 10% of the outstanding common shares, or (d) demand by the

holder of the special share.




18. Share capital (continued):

The following table presents changes in the number of common shares outstanding that occurred during each year:

2015 2014

Common shares, January 1 93,147,778 94,910,880

Common shares issued in connection with share-based compensation plans 101,543 109,921

Common shares retired under share repurchase (1,454,196 ) (1,873,023 )

Common shares, December 31 91,795,125 93,147,778

At December 31, 2015, subsidiaries of Genworth Financial Inc. owned 52,562,042 common shares of the Company or approximately 57.3% (2014 - 53,395,420 or

approximately 57.3%).

Share repurchases:

2015:

Shares purchased by the Company for cancellation are recognized as a reduction to share capital equal to the average carrying

value of the common shares. Any difference between the aggregate purchase price and the average carrying value of the

common shares is recorded in retained earnings. Expenses incurred in connection with the share purchases are recorded in

retained earnings.

During the year ended December 31, 2015, the Company received approval by the Toronto Stock Exchange for the Company to

undertake a normal course issuer bid ("NCIB"). Pursuant to the NCIB, the Company can purchase, for cancellation, up to

4,658,577 shares representing approximately 5% of its outstanding common shares. Purchases of common shares under the

NCIB commenced on May 5, 2015 and will conclude on the earlier of May 4, 2016 and the date on which the Company has

purchased the maximum number of shares under the NCIB.

During the year ended December 31, 2015, under the terms of the NCIB, the Company purchased 1,454,196 shares for

cancellation on the open market for an aggregate price of $50,007. The Company's majority shareholder Genworth Financial Inc.

through its subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% ownership interest

in the Company.

2014:

During the year ended December 31, 2014, the Company received approval by the Toronto Stock Exchange for the Company to

undertake an NCIB. Pursuant to the NCIB, the Company could purchase, for cancellation, up to 4,746,504 shares representing

approximately 5% of its outstanding common shares. Purchases of common shares under the NCIB may have commenced on or

after May 5, 2014 and concluded on the earlier of May 4, 2015 and the date on which the Company had purchased the maximum

number of shares under the NCIB.

During the year ended December 31, 2014, under the terms of the NCIB, the Company purchased 1,873,023 common shares for

cancellation on the open market for an aggregate price of $75,009. The Company's majority shareholder Genworth Financial Inc.

through its subsidiaries, participated proportionately in the share purchase transaction and maintained a 57.3% ownership interest

in the Company.




19. Long-term debt:

On June 29, 2010, the Company completed an offering of $275,000 principal amount of senior unsecured debentures ("Series 1").

The Series 1 debentures were issued for gross proceeds of $274,862 or a price of $99.95, before approximate issuance costs of

$2,413.

On December 16, 2010, the Company completed an additional offering of $150,000 principal amount of senior unsecured

debentures ("Series 2"). The Series 2 debentures were issued at par, before approximate issuance costs of $986.

On April 1, 2014, the Company completed an offering of $160,000 principal amount of senior unsecured debentures ("Series 3").

The Series 3 debentures were issued at par, before approximate issuance costs of $1,365.

On May 1, 2014, the Company redeemed its existing Series 2 senior unsecured debentures with a principal amount of $150,000.

The Company repaid the principal amount plus accrued and unpaid interest to the redemption date of $2,584. In addition, the

Company paid an early redemption fee to existing debt holders of $7,249.

All debentures issued are redeemable at the option of the Company in whole or in part, at any time subject to an early redemption

fee.

The issuance costs and discount are amortized over the respective terms of the debentures using the effective interest method.

The following table provides details of the Company's long-term debt:

Series 1 Series 3

Date issued June 29, 2010 April 1, 2014

Maturity date June 15, 2020 April 1, 2024

Principal amount $275,000 $160,000

Fixed annual rate 5.68% 4.242 %

Semi-annual interest payment due each period on: June 15 October 1

December 15 April 1




19. Long-term debt (continued):

The Company's long-term debt balances are as follows:

2015 Series 1 Series 3 Total

Carrying value $ 273,670 $ 158,834

$ 432,504

Fair value 299,489 159,662

459,151

2014 Series 1 Series 3 Total

Carrying value $ 273,418 $ 158,719

$ 432,137

Fair value 310,896 165,579

476,475

The Company's long-term debt is classified as a Level 2 financial instrument, as described in note 22, as the fair value of the debt

is determined using observable market data.

The Company incurred interest expense of $22,774 and $23,686 for the years ended December 31, 2015 and 2014, respectively,

with accrued interest payable of $2,429 at December 31, 2015 (2014- $2,429).




20. Earnings per share:

Basic earnings per share have been calculated using the weighted average number of shares outstanding of 92,296,521 (2014 -

94,787,064). Diluted earnings per share have been calculated using the diluted weighted average number of shares outstanding of

92,771,849 (2014 -94,966,380). 155,933 Options (2014 - 1,001,764 Options, 4,346 RSUs, 17,845 PSUs, 40,781 DSUs and 20,153

EDSUs) were excluded from the calculation of diluted weighted average number of shares since their effect would have been

anti-dilutive.

Earnings per share are presented below:

2015 2014

Basic earnings per share:

Net income $ 398,302 $ 376,544

Diluted earnings per share:

Re-measurement amount net of income taxes (7,166 ) 106

Earnings for purposes of diluted earnings per share $ 391,136 $ 376,650

Basic common shares outstanding, beginning of year: 93,147,778 94,910,880

Effect of share-based compensation exercised during the year 64,941 73,071

Effect of repurchase of common shares during the year (916,198 ) (196,887)

Weighted average basic common shares outstanding during the year 92,296,521 94,787,064

Basic earnings per share $ 4.32 $ 3.97

Diluted earnings per share:

Basic weighted average common shares outstanding 92,296,521 94,787,064

Effect of share-based compensation during the year 475,328 179,316

Diluted weighted average common shares outstanding during the year

92,771,849 94,966,380

Diluted earnings per share $ 4.22 $ 3.97




21. Non-current assets and liabilities:

The following table presents assets and liabilities the Company expects to recover or settle after 12 months at December 31,

2015 and 2014.

2015 2014

Assets:

Collateral under reinsurance agreement $ — $ 28,446

Bonds and debentures 4,691,333 4,535,976

Preferred shares 247,717 —

Common shares — 170,456

Subrogation recoverable 12,637 14,324

Total assets 4,951,687 4,749,202

Liabilities:

Loss reserves 75,343 57,080

Derivative financial instruments 50,154 23,298

Accrued net benefit liabilities under employee benefit plans 36,764 35,880

Long-term debt 432,504 432,137

Total liabilities 594,765 548,395

Net assets due after one year $ 4,356,922 $ 4,200,807




22. Fair value measurement:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date.

Fair value measurements are based on a three-level fair value hierarchy based on inputs used in estimating the fair value of assets

and liabilities. The hierarchy of inputs is summarized below:

Level 1 - inputs used to value the financial assets and liabilities are unadjusted quoted prices in active markets for identical

assets or liabilities;

Level 2 - inputs used to value the financial assets and liabilities are other than quoted prices included in Level 1 that are

observable for the asset or liability either directly or indirectly; and

Level 3 - inputs used to value the financial assets and liabilities are not based on observable market data.




22. Fair value measurement (continued):

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in

the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair

value if the carrying amount is a reasonable approximation of fair value.

Carrying amount Fair value

Loans Other

and financial

2015 AFS FVTPL receivables liabilities Level 1 Level 2 Level 3

Financial assets measured

at fair value:

Short-term investments $ 78,178 $ — $ — $ — $ 78,178 $ — $ —

Derivative financial instruments — — — — — — —

Bonds and debentures 5,200,715 — — — — 5,200,715 —

Preferred shares 247,717 — — — 247,717 — —

5,526,610 — — — 325,895 5,200,715 —

Financial assets not measured

at fair value:

Cash and cash equivalents — — 390,796 — — — —

Accrued investment income

and other receivables — — 28,130 — — — —

— — 418,926 — — — —

Financial liabilities measured

at fair value:

Derivative financial instruments — (83,861) — — — (83,861) —

Financial liabilities not

measured at fair value:

Accounts payable and accrued

liabilities — — — (65,750) — — —

Long-term debt — — — (432,504) — (459,151) —

— — — (498,254) — (459,151) —

Total $ 5,526,610 $ (83,861) $ 418,926 $ (498,254) $ 325,895 $ 4,657,703 $ —





Carrying amount Fair value

Loans Other

and financial

2014 AFS FVTPL receivables liabilities Level 1 Level 2 Level 3

Financial assets measured

at fair value:

Short-term investments $ 84,933 $ — $ — $ — $ 84,933 $ — $ —

Derivative financial instruments — 303 — — — 303 —

Bonds and debentures 4,997,359 — — — — 4,997,359 —

Common shares 170,456 — — — 170,456 — —

5,252,748 303 — — 255,389 4,997,662 —

Financial assets not measured

at fair value:

Cash and cash equivalents — — 190,375 — — — —

Accrued investment income

and other receivables — — 30,099 — — — —

Collateral receivable under

reinsurance agreement — — 28,446 — — — —

— — 248,920 — — — —

Financial liabilities measured

at fair value:

Derivative financial instruments — (23,298) — — — (23,298) —

Financial liabilities not

measured at fair value:

Accounts payable and accrued

liabilities — — — (41,557) — — —

Long-term debt — — — (432,137) — (476,475) —

— — — (473,694) — (476,475) —

Total $ 5,252,748 $ (22,995) $ 248,920 $ (473,694) $ 255,389 $ 4,497,889 $ —





The fair value of cash and cash equivalents, accrued investment income and other receivables, collateral receivable under

reinsurance agreement and accounts payable and accrued liabilities approximates fair value due to the short term nature of these

items.

During the years ended December 31, 2015 and 2014, the Company did not hold any investments measured at fair value using

unobservable inputs (Level 3). Transfers between levels of the fair value hierarchy may occur if the inputs used to value the

investments change. Any transfers between the levels are deemed to have occurred at the end of the reporting period. Given

the types of assets classified in Level 1, which are short-term investments and preferred or common shares, the Company does

not typically have any transfers between Level 1 and Level 2 of the fair value hierarchy, and there were no such transfers during

the years ended December 31, 2015 and 2014.

Valuation of Level 2 financial instruments:

Fair values of bonds and debentures, including CLOs, are obtained primarily from industry standard pricing services and third party

brokers utilizing market observable inputs. Fair value is assessed by analyzing available market information through processes

such as benchmark curves, benchmarking of like securities and quotes from market participants.

Observable information is compiled and integrates relevant credit information, interest rates of the underlying investment,

perceived market movements and sector news. Market indicators, industry and economic events are also monitored as triggers

to obtain additional data. The primary inputs used in determining fair value of bonds and debentures and preferred shares are

interest rate curves and credit spreads.

Derivative financial instruments are non-exchange traded foreign currency forwards, cross currency interest rate swaps and equity

total return swaps. The value of these derivative financial instruments is determined using an income approach in which future

cash flows expected from the contracts are discounted to reflect the current value of the derivative financial instruments. The

primary inputs used in determining fair value of foreign currency forwards and cross currency swaps are interest rate yield curves

and foreign currency exchange rates. The primary inputs used in determining fair value of equity total return swaps are market

prices for referenced assets and interest rate yield curves.

The Company's long-term debt is a financial liability that is not carried at fair value on the Company's consolidated statements of

financial position, for which fair value is disclosed in the notes to the consolidated financial statements (note 19). Fair values are

obtained from independent pricing sources utilizing market observable information. The primary inputs used in the valuation of

the long-term debt are interest rate curves and credit spreads.


Years ended December 31(in millions, unless otherwise specified) 2015 2014 2013 2012 2011

Income statement data

Gross premiums written $ 809 $ 640 $ 512 $ 560 $ 545

Net premiums earned 586 565 573 589 612

Underwriting revenues 586 565 573 589 612

Losses 122 111 142 194 225

Expenses 108 107 113 105 101

Investment income 201 195 215 181 179

Impact of the reversal of government guarantee fund exit fees 0 0 0 186 0

Interest expense 1 (23) (31) (23) (23) (23)

Pre-tax income 534 511 511 635 443

Net income 398 377 375 470 323

Net operating income 375 366 349 462 318

Balance sheet data

Cash and investments 5,917 5,443 5,375 5,379 5,063

Total assets 6,239 5,770 5,691 5,734 5,393

Unearned premium reserves 2,021 1,799 1,724 1,785 1,824

Debt 433 432 423 422 422

Total liabilities 2,819 2,499 2,604 2,697 2,710

Shareholders equity 3,420 3,271 3,087 3,037 2,683

AOCI 127 185 124 221 215

Shareholders equity, Excluding AOCI 3,293 3,086 2,963 2,816 2,468

Key ratios and other items

Loss ratio 21% 20% 25% 33% 37%

Expense ratio 18% 19% 20% 18% 17%

Combined ratio 39% 39% 44% 51% 53%

Operating return on equity 12% 12% 12% 17% 13%

Adjusted operating return on equity 2 12% 12% 12% 13% 13%

MCT ratio 3 234% 225% 223% 170% 162%

Delinquency ratio 0.10% 0.10% 0.12% 0.14% 0.20%

Severity ratio 29% 29% 30% 32% 32%

Leverage 11% 12% 12% 12% 14%

Operating earnings per share (diluted) $ 4.05 $ 3.86 $ 3.60 $ 4.67 $ 3.08

Adjusted operating Earnings per share (diluted) 2 $ 4.05 $ 3.86 $ 3.60 $ 3.43 $ 3.08

Book value per share (diluted, exc. AOCI) $ 35.46 $ 33.04 $ 31.22 $ 28.40 $ 24.78

Book value per share (diluted, incl. AOCI) $ 36.82 $ 35.02 $ 32.53 $ 30.62 $ 26.94

Five-year financial reviewCertain terms and abbreviations used in the Annual Report are defined below.

1 2014 Interest Expense Includes $7 million of fee on early redemption of long term debt2 Adjusted for the impact of the government guarantee fund exit fee reversal in 20123 Final MCT as compared to the reported estimate of 233% in Management’s Discussion and Analysis and Financial Statements for the year ended December 31, 2015


(For the quarter ended, in millions,unless otherwise specified) 2015 2014

Q4'15 Q3'15 Q2'15 Q1'15 Q4'14 Q3'14 Q2'14 Q1'14

Net Premiums Written $ 213 $ 260 $ 205 $ 130 $ 178 $ 217 $ 160 $ 84

Net Premiums Earned 151 148 144 143 143 140 141 141

Underwriting revenues 151 148 144 143 143 140 141 141

Losses on claims 35 31 25 31 37 30 17 28

Expenses 27 28 29 24 30 24 27 27

Net underwriting income 90 89 90 87 76 87 97 86

Investment Income 47 39 58 57 47 51 49 49

Impact of the reversal of government guarantee fund exit fees

Fee on early redemption of long term debt (7)

Interest Expense (6) (6) (6) (6) (6) (6) (7) (6)

Net income 98 90 103 107 86 98 97 95

Adjustment to net income, net of taxes:

Fee on early redemption of long term debt 5

Net Investment Gains (3) 3 (12) (11) (3) (6) (4) (4)

Net Operating Income 95 92 91 97 84 93 99 91

Loss ratio 23% 21% 17% 22% 26% 21% 12% 20%

Expense ratio 18% 19% 20% 17% 21% 17% 19% 19%

Combined ratio 41% 40% 37% 39% 47% 38% 31% 39%

Operating earnings per share diluted $ 1.03 $ 1.00 $ 0.99 $ 1.03 $ 0.89 $ 0.95 $ 1.04 $ 0.96

2014 and 2015 quarterly information

Des

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Shareholder information

Exchange listingThe Toronto Stock Exchange:Common shares (MIC)

Common sharesAs at December 31, 2015, there were91,795,125 common shares outstanding (basic).

Independent auditorKPMG LLPBay Adelaide Centre333 Bay Street, Suite 4600Toronto, Ontario M5H 2S5

Registrar and transfer agentCanadian Stock Transfer Company, Inc.320 Bay Street, P.O. Box 1Toronto, Ontario M5H 4A6Tel: 416-643-5000Fax: 416-643-5570www.canstockta.com

All inquiries related to address changes, elimination of multiple mailings, transfer ofMIC shares, dividends or other shareholder account issues should be forwarded to theoffices of Canadian Stock Transfer Company.

Investor relationsShareholders, security analysts and investment professionals should directinquiries to:Jonathan A. PintoVice-President, Investor [email protected]

Additional financial information has been filed electronically with various securitiesregulators in Canada through the System for Electronic Document Analysis and Retrieval (SEDAR) and with the Office of the Superintendent of Financial Institutions (OSFI) as the primary regulator for the Company’s subsidiary, Genworth Financial Mortgage Insurance Company Canada.

The Company holds a conference call following the release of its quarterly results. These calls are archived in the Investor section of the Company’s website.

Annual general meeting of shareholdersDate: Thursday, June 2, 2016Time: 10:00 AMLocation: TMX Broadcast CentreThe Exchange Tower130 King St West, Toronto, Ontario

Board of DirectorsComplaints about the Company’s internal accounting controls or auditing matters or any other concerns may be addressed directly to the Board of Directors or the Audit Committee at:

Board of DirectorsGenworth MI Canada Inc.c/o Winsor Macdonell, Secretary2060 Winston Park Drive, Suite 300Oakville, Ontario L6H 5R7Tel: 905-287-5484

Corporate ombudspersonConcerns related to compliance with the law, Genworth policies or government contracting requirements may be directed to:

Genworth ombudsperson2060 Winston Park Drive, Suite 300Oakville, Ontario L6H 5R7Tel: [email protected]

Disclosure documentsCorporate governance, disclosure and otherinvestor information is available online fromthe Investor Relations pages of the Company’s website at http://investor.genworthmicanada.ca.

Cautionary statementsThe cautionary statements included in theCompany’s Management’s Discussion andAnalysis and Annual Information Form,including the “Special note regarding forward-looking statements” and the “Non-IFRS financial measures,” also apply to this Annual Report and all information and documents included herein. These documents can be found at www.sedar.com.

2015 common share dividend datesThe declaration and payment of dividends and the amount thereof are at the discretion of the Board, which takes into account the Company’s financial results, capital requirements, available cash flow and other factors the Board considers relevant from time to time.

Eligible dividend designationFor purposes of the dividend tax credit rulescontained in the Income Tax Act (Canada) and any corresponding provincial or territorial tax legislation, all dividends (and deemed dividends) paid by Genworth MI Canada Inc. to Canadian residents are designated as eligible dividends. Unless stated otherwise, all dividends (and deemed dividends) paid by the Company hereafter are designated as eligible dividends for the purposes of such rules.

Information for shareholders outside CanadaDividends paid to residents in countrieswith which Canada has bilateral tax treatiesare generally subject to the 15% Canadian non-resident withholding tax. There is no Canadian tax on gains from the sale of shares (assuming ownership of less than 25%) or debt instruments of the Company owned by non-residents not carrying on business in Canada. (No government in Canada levies estate taxes or succession duties.)

The issuer ratings of Genworth MI Canada and financial strength ratings of Genworth Financial Mortgage Insurance Company Canada reflect each rating agency’s opinion of the Company’s financial strength, operating performance and ability to meet obligations to policyholders.

S&P DBRS

Issuer rating

Genworth MI Canada Inc. BBB+, Stable AA (low), Stable

Financial strength

Genworth Financial Mortgage Insurance Company Canada

A+, Stable AA, Stable

Senior unsecured debentures

Genworth MI Canada Inc. BBB+, Stable AA (low), Stable

Declared Record PayableAmount percommon share

10/28/15 11/13/15 11/27/15 $0.42

08/04/15 08/17/15 08/31/15 $0.39

04/27/15 05/15/15 05/29/15 $0.39

02/09/15 02/23/15 03/06/15 $0.39

Credit ratings Dividend declaration dates

Contact:

Investor RelationsEmail: [email protected]

Genworth MI Canada2060 Winston Park Drive, Suite 300Oakville, Ontario L6H 5R7

Tel: 905.287.5300Fax: 905.287.5472www.genworth.ca


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